AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-71213
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MINNESOTA CORN PROCESSORS, LLC
(Exact name of Registrant as specified in its charter)
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COLORADO 31199 41-1928467
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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901 NORTH HIGHWAY 59, MARSHALL, MN 56258-2744 (Address,
including zip code, and telephone number, including
area code, of registrant's principal executive offices)
L. DAN THOMPSON
MINNESOTA CORN PROCESSORS, INC.
901 NORTH HIGHWAY 59
MARSHALL, MN 56258-2744
(507) 537-2676
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
Ronald D. McFall, Esq. David P. Swanson
Doherty, Rumble & Butler, P.A. Dorsey & Whitney, LLP
2800 Minnesota World Trade Center Pillsbury Center South
30 East Seventh Street 220 South Sixth Street
Saint Paul, MN 55101 Minneapolis, MN 55402
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the conversion pursuant to the Transaction Agreement described
herein have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. -
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. -
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1993 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[COMPANY LOGO GRAPHIC OMITTED]
MINNESOTA CORN PROCESSORS, LLC
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INFORMATION STATEMENT -- PROSPECTUS
RELATING TO THE CONVERSION
OF MINNESOTA CORN PROCESSORS, INC.
TO A COLORADO LIMITED LIABILITY COMPANY
The Board of Directors of Minnesota Corn Processors, Inc. has determined
to convert Minnesota Corn Processors, Inc. from a Minnesota cooperative into a
Colorado limited liability company. To accomplish the conversion, we propose to
take the following steps:
o First, Minnesota Corn Processors, Inc. will merge with and into Minnesota
Corn Processors Colorado, a Colorado cooperative which has been newly
formed to effectuate the conversion.
o Second, immediately after the initial merger, MCP Colorado will merge with
and into Minnesota Corn Processors, LLC, a newly formed Colorado limited
liability company.
The effect of the two mergers is to convert Minnesota Corn Processors, Inc.
into a Colorado limited liability company. As a result of the two mergers, each
unit of equity participation of Minnesota Corn Processors, Inc. that you hold
will be converted into one Class A unit of the new limited liability company.
Each member holding 5,000 or more Class A units will be entitled to one vote.
Your shares of common stock of Minnesota Corn Processors, Inc. will be canceled
in the conversion. Nonvoting units of equity participation of MCP held by Archer
Daniels Midland Company will be converted into nonvoting Class B units of the
new limited liability company. Each Class A unit and Class B unit represent a
share of the profits and losses of the new limited liability company as well as
the right to receive distributions. In addition, the stated amount of any
patronage dividend that was issued as a nonqualified written notice of
allocation will be converted into a nonvoting financial interest in the new
limited liability company that will have rights comparable to such nonqualified
written notices. Each holder of nonvoting financial interests in the new limited
liability company will have limited rights to receive distributions and profit
allocations.
As the sole shareholder of MCP Colorado before the initial merger,
Minnesota Corn Processors, Inc. has approved the second merger between MCP
Colorado and the new limited liability company. Although you will not vote on
the second merger, neither the first merger nor the second merger will happen
unless members approve the first merger. So, if you vote in favor of the first
merger, it will have the same effect as if you voted in favor of the second
merger.
We have scheduled a special meeting of members of Minnesota Corn
Processors, Inc. on ______, 1999 at Jackpot Junction, Morton, Minnesota to vote
on the merger between Minnesota Corn Processors, Inc. and MCP Colorado. In
addition, we will hold regional information meetings in ___________ and
___________ to answer any questions you may have relating to the conversion. To
vote on the proposed merger, you must use the enclosed mail ballot. ADDITIONAL
BALLOTS WILL NOT BE DISTRIBUTED AT ANY REGIONAL INFORMATION MEETING OR THE
SPECIAL MEETING. Please take the time to vote by completing and returning the
enclosed ballot by _______, 1999. YOUR VOTE IS VERY IMPORTANT.
See "Risk Factors" beginning on page ___ to read about certain factors you
should consider before voting.
This document provides detailed information about the proposed conversion
and the new limited liability company. You should carefully review this entire
document. We strongly support the conversion and enthusiastically recommend that
you vote in favor of the merger.
Jerry Jacoby
Chairman
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS JOINT INFORMATION STATEMENT/PROSPECTUS IS ACCURATE
OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information Statement-Prospectus dated _______, 1999, and first mailed to
members on _______, 1999.
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[COMPANY LOGO GRAPHIC OMITTED]
MINNESOTA CORN PROCESSORS, INC.
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901 NORTH HIGHWAY 59, MARSHALL, MN 56258-2744
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NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON _______, 1999
To the Members:
Notice is hereby given that a Special Meeting of Members of Minnesota Corn
Processors, Inc. (the "Cooperative"), a Minnesota cooperative, will be held on
_______, 1999, at _______, local time, at Jackpot Junction, Morton, Minnesota,
for the following purposes:
To consider and vote upon a proposal to approve (i) the Plan of Merger
("MCP Merger Agreement"), dated as of _______, 1999 by and between the
Cooperative and Minnesota Corn Processors Colorado, a newly formed Colorado
cooperative ("MCP Colorado") and (ii) the Transaction Agreement, dated as
of _______, 1999, by and among the Cooperative, MCP Colorado and Minnesota
Corn Processors, LLC, a newly formed Colorado limited liability company
(the "LLC"). The MCP Merger Agreement provides for the merger of the
Cooperative with and into MCP Colorado ("MCP Merger"), upon the terms and
subject to the conditions set forth in the MCP Merger Agreement and the
Transaction Agreement. If the MCP Merger Agreement is approved, immediately
after the effective time of the MCP Merger and without further action by
members of the Cooperative, MCP Colorado will merge with and into the LLC.
As a result of both mergers (i) the LLC will be the surviving entity, (ii)
members of the Cooperative will become members of the LLC and receive a
number of Class A units of the LLC equal to the number of units of equity
participation they hold as of _______, 1999, (iii) nonmembers of the
Cooperative (i.e., ADM) holding nonvoting units of equity participation
will become non-voting members of the LLC and receive Class B units of the
LLC and (iv) holders of nonqualified written notices of allocation will
receive nonvoting financial interests in the LLC.
The close of business on __________, 1999 has been fixed as the record date for
determining those members entitled to vote at the Special Meeting and any
adjournments or postponements of the meeting.
Regional information meetings will be held on _______, 1999 in ___ and on
_______, 1999 in _______.
You are invited to attend a regional information meeting and the Special
Meeting. If you are unable to attend, please complete and return the enclosed
mail ballot to the Cooperative in the envelope provided. We must receive your
ballot by , 1999. YOU MAY VOTE ON THE PROPOSED MERGER ONLY BY USING THE ENCLOSED
BALLOT. NO ADDITIONAL BALLOTS WILL BE DISTRIBUTED AT ANY REGIONAL INFORMATION
MEETING OR THE SPECIAL MEETING. NO PROCEDURES EXIST FOR A MEMBER TO REVOKE A
BALLOT ONCE THE BALLOT HAS BEEN RECEIVED BY THE COOPERATIVE.
By Order of the Board of Directors
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Jerry Jacoby
Chairman
_______, 1999
Marshall, Minnesota
THE BOARD OF DIRECTORS OF MINNESOTA CORN PROCESSORS, INC. UNANIMOUSLY
RECOMMENDS THAT MEMBERS VOTE FOR APPROVAL OF THE MCP MERGER AGREEMENT AND THE
TRANSACTION AGREEMENT.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE CONVERSION ..................................... 1
SUMMARY ........................................................................ 2
RISK FACTORS ................................................................... 8
Certain Risks Related to Federal Income Tax Consequences .................. 8
Lack of Public Market for Class A Units; Restrictions on Transfers ........ 9
Intense Competition ....................................................... 9
Sensitivity to Corn Prices ................................................ 10
Leverage, Ability to Service Debt and Restrictive Covenants ............... 10
Government Regulation ..................................................... 10
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION ................................................... 11
THE SPECIAL MEETING ............................................................ 12
General ................................................................... 12
Matters to be Considered .................................................. 12
Who Can Vote .............................................................. 12
How You Can Vote .......................................................... 12
Votes Required ............................................................ 12
Recommendation of the Cooperative Board ................................... 12
THE CONVERSION ................................................................. 13
Reasons for the Conversion ................................................ 13
Recommendation of the Cooperative Board ................................... 13
Appraisal Opinion ......................................................... 14
Material Federal Income Tax Consequences .................................. 14
Accounting Treatment ...................................................... 19
Regulatory Approval ....................................................... 19
Absence of Dissenters' Rights ............................................. 19
Federal Securities Law Consequences ....................................... 19
THE MERGER AGREEMENTS AND THE TRANSACTION AGREEMENT ............................ 20
Merger with MCP Colorado (MCP Merger Agreement) ........................... 20
Merger with the LLC (LLC Merger Agreement) ................................ 20
Exchange of Certificates .................................................. 21
Effective Time ............................................................ 21
Employee Benefit Plans .................................................... 21
Patronage Distributions ................................................... 21
1996 Loss Payables ........................................................ 22
Representation and Warranties ............................................. 22
Conditions to Consummation of the Mergers ................................. 22
Conduct of Business Prior to Conversion ................................... 23
Termination ............................................................... 23
Amendment ................................................................. 23
Indemnification and Insurance ............................................. 23
SELECTED FINANCIAL DATA ........................................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................. 26
Overview And Outlook ...................................................... 26
Results of Operations ..................................................... 26
Liquidity and Capital Resources ........................................... 28
Year 2000 ................................................................. 29
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BUSINESS ....................................................................... 30
Overview .................................................................. 30
The Corn Sweetener and Ethanol Markets .................................... 30
Corn Procurement .......................................................... 32
Wet Milling Operations .................................................... 32
Products .................................................................. 34
Product Quality ........................................................... 35
Sales and Distribution .................................................... 35
Competition ............................................................... 36
Government Regulation and Environmental Matters ........................... 36
Production Facilities ..................................................... 36
Legal Proceedings ......................................................... 37
Employees ................................................................. 37
MANAGEMENT ..................................................................... 38
Directors ................................................................. 38
Committees of the Board ................................................... 42
Compensation of Directors ................................................. 43
Executive Officers ........................................................ 43
Executive Compensation .................................................... 44
Employee Benefit Plans .................................................... 44
Management Stock Purchase Program ......................................... 45
Employment Agreements ..................................................... 45
Security Ownership of Management .......................................... 46
DESCRIPTION OF MEMBERSHIP UNITS ................................................ 47
General ................................................................... 47
Qualifications for Membership ............................................. 47
Class A Units ............................................................. 47
Class B Units ............................................................. 48
Distributions ............................................................. 48
Capital Accounts and Contributions ........................................ 48
Allocation of Profits and Losses; Special Allocation Rules ................ 48
Restrictions on Transfer of Units ......................................... 48
Distribution of Assets Upon Liquidation ................................... 49
Amendments to Operating Agreement ......................................... 49
COMPARISON OF CERTAIN RIGHTS OF MEMBERS ........................................ 50
Taxation .................................................................. 50
Limited Liability ......................................................... 50
Distributions; Corn Delivery Obligation ................................... 50
Authorized Capital ........................................................ 51
Membership Interests ...................................................... 51
Liquidity and Transferability ............................................. 51
Voting Rights ............................................................. 52
Termination of Membership ................................................ 52
Redemption ................................................................ 52
Annual Meetings ........................................................... 53
Vote on Extraordinary Transactions ........................................ 53
Amendment of Governing Documents .......................................... 53
Preemptive Rights ......................................................... 53
Appraisal Rights of Dissenting Members .................................... 53
Liquidating Rights ........................................................ 54
Financial Reporting ....................................................... 54
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Fiduciary Duties .......................................................... 54
Indemnification of Officers and Directors ................................. 55
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ...................................... 56
Tax Status of the LLC ..................................................... 56
Publicly Traded Partnership Rules ......................................... 56
Treatment of the LLC's Operations ......................................... 58
Tax Consequences of LLC Unit Ownership .................................... 59
Tax Consequences of Disposition of Units .................................. 60
Other Tax Matters ......................................................... 62
LEGAL MATTERS .................................................................. 64
EXPERTS ........................................................................ 64
WHERE YOU CAN FIND MORE INFORMATION ............................................ 65
PRO FORMA CONDENSED FINANCIAL INFORMATION ...................................... 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................... 81
APPENDIX A: MCP Merger Agreement ............................................... A-1
APPENDIX B: LLC Merger Agreement ............................................... B-1
APPENDIX C: Transaction Agreement .............................................. C-1
APPENDIX D: Operating Agreement of Minnesota Corn Processors, LLC .............. D-1
APPENDIX E: Summarization Letter of Appraisal Opinion,
dated February 1, 1999 ............................................. E-1
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QUESTIONS AND ANSWERS ABOUT THE CONVERSION
Q: Why is Minnesota Corn Processors converting to a limited liability
company? How will I benefit?
A: The conversion is necessary to continue to ensure that any earnings
generated by the business is not subject to federal "double taxation"
(once at the company level when earned and once again at the member
level when distributed). We also believe that the limited liability
company structure will give us the flexibility to compete more
effectively by removing constraints to corn procurement.
Q: What will I receive in the conversion?
A. You will receive one Class A unit of the new limited liability company
for each unit of equity participation of Minnesota Corn Processors you
own on _______, 1999. Also, you will continue to be a member of the LLC,
with voting rights on a one vote per member basis, as long as you own
5,000 Class A units.
Q: Will I continue to get value-added payments?
A: No, but you will be entitled to receive cash distributions in proportion
to your equity interest in the new limited liability company, subject to
applicable loan covenants and the approval of the Board of Directors.
Q: Do I have to pay self-employment taxes on the income allocations or cash
distributions?
A: No. Based on proposed regulations, it appears probable that limited
liability company members generally will not be subject to
self-employment tax.
Q: What happens to the amount I owe the Cooperative for losses allocated to
me in 1996?
A: If you have not yet paid us for your share of the 1996 loss, the unpaid
amount will carry over as a lien against the Class A units you receive
in the conversion. Upon a transfer of your Class A units, you must pay
off this liability. In addition, the allocated losses will also be
deducted from future cash distributions, in a manner consistent with
Minnesota Corn Processor's previous plan.
Q: How will I be taxed on the conversion?
A: You will recognize gain or loss for federal income tax purposes in the
conversion in an amount equal to the difference between the fair market
value of the Class A units you receive and the tax basis of your units
of equity participation. To review how the value of the new units has
been determined, see pages ___ - ___.
Q: Will the new units trade any differently?
A: Generally, no. Although the liquidity for the Class A units may be
enhanced by not restricting ownership to agricultural producers, the
Class A units will not trade on any stock exchange or on a less formal
secondary market. To review the restrictions on transfers, see pages ___
- ___.
Q: Should I send in my stock certificates?
A: No, you do not need to exchange your current certificates for new ones.
After the conversion, each unit of equity participation you now own will
automatically represent one Class A unit of the new limited liability
company.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
TRANSACTION FULLY AND FOR A COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
CONVERSION, YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE APPENDICES.
MINNESOTA CORN Established as a farmer-owned
PROCESSORS, INC. cooperative under Minnesota law in
1980, Minnesota Corn Processors, Inc.
(the "Cooperative") is a large
processor of corn and the second
largest producer of ethanol in the
United States. MCP produces high
fructose corn sweeteners, corn syrup,
corn starch, ethanol and feed
co-products. These products are used
in a variety of industries. The
principal offices of the Cooperative
are located at 901 North Highway 59,
Marshall, MN 56258-2744. The
telephone number is 507-537-2676.
MINNESOTA CORN Minnesota Corn Processors, LLC (the
PROCESSORS, LLC "LLC") is a newly formed limited
liability company organized under the
laws of Colorado. A limited liability
company is a form of business entity
that possesses both corporate and
partnership characteristics. It is
generally characterized as a
partnership for federal income tax
purposes (the entity pays no federal
income tax), while providing
corporate-type limited liability
(members are not personally liable
for the Cooperative's debts and
obligations). The Cooperative is
currently the sole member of the LLC.
The address and telephone number will
be the same as those of the
Cooperative.
MINNESOTA CORN Minnesota Corn Processors Colorado
PROCESSORS COLORADO ("MCP Colorado") is a newly formed
Colorado cooperative that has been
organized to accomplish the
conversion of the Cooperative into a
limited liability company. MCP
Colorado is currently a wholly-owned
subsidiary of the Cooperative.
OUR REASONS FOR THE Because of the amount of corn
CONVERSION required to operate our wet milling
facilities and the location of the
facilities relative to our members,
we have become increasingly concerned
in recent years about our ability to
maintain and operate a corn delivery
program on a cooperative basis
without imposing a heavy corn
delivery burden on our members. To
avoid any potential challenge to our
status as a cooperative, your Board
of Directors has thoroughly
considered three alternatives: (1)
continuing to claim cooperative tax
status and risk a potential
substantial future tax liability if
an IRS challenge is successful, (2)
electing to be taxed as a corporation
and subject to two levels of
potential tax on income earned by the
business and (3) converting into a
limited liability company to
reasonably assure that our income is
subject to only one level of federal
income tax. An appraisal suggests
that the current value of the
Cooperative makes it feasible to
convert to a limited liability
company and the Board has concluded
that the conversion is the most
attractive of the three options
considered.
HOW THE CONVERSION WILL The conversion will involve two
BE COMPLETED steps:
(1) The Cooperative has created a new
Colorado cooperative (MCP
Colorado) and will merge into MCP
Colorado. Initially, all shares
of stock and units of equity
participation of the Cooperative
will be converted into
corresponding equal amounts of
stock and units of equity
participation of MCP Colorado.
MCP Colorado's Articles of
Incorporation and Bylaws will be
substantially identical to the
Cooperative's. This merger, which
we refer to as the MCP Merger, is
necessary because Minnesota law
does not permit a merger between
a cooperative and a limited
liability company. Also, this
merger allows us to avoid paying
deed taxes on the transfer of
real property in connection with
the conversion.
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(2) Immediately after the MCP Merger takes
effect, MCP Colorado will merge into
the new limited liability company,
which we refer to as the LLC Merger. As
a result, the LLC will own all of the
assets and assume all of the
liabilities of the Cooperative. All
shares of stock of MCP Colorado will be
canceled, and all units of equity
participation of MCP Colorado will be
converted into Class A or Class B
membership interests of the LLC. All
nonqualified written notices of
allocation will be converted into
nonvoting financial interests in the
LLC having comparable rights. The LLC
has been organized under Colorado law
because the provisions of the Colorado
Limited Liability Company Act provide a
greater deal of flexibility in
structuring a customized business
entity than those of the Minnesota
Limited Liability Company Act.
WE HAVE ATTACHED THE AGREEMENTS WHICH
DESCRIBE THE LEGAL TERMS OF THE
CONVERSION AS APPENDIX A, B AND C TO
THIS DOCUMENT. WE ENCOURAGE YOU TO
READ EACH AGREEMENT.
VOTE REQUIRED TO APPROVE You are being asked to vote on the
THE MERGER MCP Merger only, and you will not
vote on the LLC Merger. The
Cooperative, as the sole stockholder
of MCP Colorado, has approved the LLC
Merger. The LLC Merger (and thus the
conversion) will not take effect,
however, unless the MCP Merger is
approved by members.
You can vote if you owned shares of
Common Stock of the Cooperative as of
the close of business on _____, 1999.
Each voting member will have one vote
regardless of the number of units of
equity participation owned. The
favorable vote of two-thirds of the
votes cast, in person or by mail, at
the special meeting is required to
approve the MCP Merger.
WHAT YOU WILL RECEIVE IN As a result of the MCP Merger and LLC
THE CONVERSION Merger, you will receive one Class A
unit of the LLC for every unit of equity
participation of the Cooperative you own
on _____, 1999. Your shares of common
stock of the Cooperative will be
canceled. Each Class A unit represents a
share of the profits and losses of the
new limited liability company. As long
as you own 1,000 Class A units, you will
be a member of the LLC and you will be
entitled to one vote if you own 5,000 or
more Class A units. If you hold a
nonqualified written notice of
allocation, it will be converted into a
nonvoting financial interest ("Special
Financial Interest") in the LLC having
comparable rights. Each nonvoting equity
participation unit held by Archer
Daniels Midland Company will be
converted into one Class B unit of the
new limited liability company. Class B
units are nonvoting interests
participating in the profit and losses
of the new limited liability company.
You do not need to surrender the
certificates representing your units
of equity participation or exchange
them for new certificates
representing the Class A units. After
the conversion, certificates
representing units of equity
participation of the Cooperative will
automatically represent Class A units
of the new limited liability company.
TAX CONSEQUENCES OF The conversion into a limited
THE CONVERSION liability company will be a taxable
event for both the Cooperative and
its members, though the Cooperative
does not expect to incur a tax
liability based on the appraisal
received by the Cooperative. The
amount of taxable gain or loss that
you will recognize will depend on
whether the value of your Class A
units received in the conversion is
greater or less than the aggregate
tax basis in your stock and units of
equity participation of the
Cooperative. We believe that the
Special Financial Interests in the
LLC that will be issued to holders of
nonqualified written notices of
allocation do not have an
ascertainable value and therefore
will not result in taxable gain. To
review tax consequences in more
detail, see pages ___. THE ACTUAL TAX
CONSEQUENCES OF THE CONVERSION TO YOU
MAY BE COMPLICATED. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR FOR A
FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE CONVERSION.
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APPRAISAL In evaluating the potential tax
impact of the conversion on the
Cooperative and its members, the
Board of Directors considered the
opinion of American Appraisal
Associates(R) that, as of September
30, 1998, the appraised value of the
Cooperative was $290.6 million and,
after appropriate discounts for
minority interest and lack of
marketability, the liquidating value
per unit was $1.10. We have attached
a summarization letter of this opinion as
Appendix E to this document. We encourage
you to read it.
CONDITIONS TO The completion of the conversion
THE CONVERSION depends on the satisfaction (or
waiver) of a number of conditions,
including:
o approval of the MCP Merger by
members;
o the absence of any court order or
legal restraint blocking the
conversion;
o the absence of any pending or
threatened governmental action
seeking to prohibit the
conversion;
o receipt of the consent of Archer
Daniels Midland Company; and
o receipt of the consent of lenders.
ACCOUNTING TREATMENT We expect the conversion will be
treated in a manner similar to that
of a "pooling of interests"
transaction under generally accepted
accounting principles. This means
that, for accounting and financial
reporting purposes, no gain or loss
will be recognized at the time of the
conversion and the book value of the
assets and liabilities of the
Cooperative at the time of the
conversion will carry over to the
LLC.
NO DISSENTERS' RIGHTS Under Minnesota law, you have no
right to demand an appraisal of your
shares in connection with the
conversion and to receive a cash
payment for the fair value of your
shares.
TAX IMPLICATIONS TO MEMBERS As a limited liability company, the
FOLLOWING THE CONVERSION LLC will pay no federal income tax on
its taxable income and will pass its
taxable income or loss to members in
proportion to their relative
ownership interests. If distributions
are made to the holders of Special
Financial Interests, a corresponding
amount of income or gain will be
specially allocated to them. When we
allocate income or loss to you, you
will be taxed on that income or,
subject to substantial restrictions,
may deduct that loss. This tax will
be imposed regardless of whether we
actually distribute cash or property
to you.
MANAGEMENT AFTER THE The present Board of Directors and
CONVERSION management team of the Cooperative
will continue to manage the LLC after
the conversion. Each director will
continue to represent one of eight
geographic districts and will be
elected by the voting members
residing in the director's district.
DIFFERENCES IN THE RIGHTS If the conversion is completed, you
OF MEMBERS will become a member of a limited
liability company, and your rights
will be governed by Colorado law and
by the Operating Agreement. In most
respects, the rights of members under
these provisions are similar to your
current rights as a member of the
Cooperative. There are some
differences, including:
o Members are not required to
produce or deliver corn and the
existing Marketing Agreement will
be terminated.
o Distributions by the LLC will be
based on investment (equity)
rather than patronage.
o No person may own less than 1,000
Class A units or more than 2% of
the issued and outstanding Class A
units.
o Members owning less than 5,000
Class A units have no voting
rights.
WE HAVE ATTACHED THE OPERATING
AGREEMENT AS APPENDIX D TO THIS
DOCUMENT. PLEASE READ THE AGREEMENT.
IT IS THE LEGAL DOCUMENT THAT GOVERNS
THE PURPOSE, POWERS AND INTERNAL
AFFAIRS OF THE NEW LIMITED LIABILITY
COMPANY.
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TRADING OF CLASS A UNITS The Board of Directors of the LLC
must approve all transfers and will
not recognize any transfer that would
result in us losing our partnership
tax status.
FORWARD-LOOKING We have made forward-looking
STATEMENTS MAY statements in this document that are
PROVE INACCURATE subject to risks and uncertainties.
When we use words such as "believes,"
"expects," "anticipates," "will" or
similar expressions, we are making
forward-looking statements. Many
possible events or factors, some of
which are discussed under "Risk
Factors" in this document, could
affect our future financial condition
and results and could cause those
results to differ materially from
those expressed in our
forward-looking statements. These
events or factors include:
o General economic, market and
competitive forces affecting our
corn processing and marketing
business.
o Legislative or regulatory changes
affecting our business.
o The risk that our analysis of
these forces and changes could be
incorrect or that the strategies
developed to address them could be
unsuccessful.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial information of
Minnesota Corn Processors, Inc. We derived this information from the
consolidated financial statements of Minnesota Corn Processors, Inc. The audited
financial statements have been audited by Clifton Gunderson L.L.C., independent
auditors.
Fiscal year 1997 was a six-month period because Minnesota Corn Processors,
Inc. changed its fiscal year end from September 30 to March 31.
You should read the financial information presented below along with our
consolidated financial statements and related notes that we include at the end
of this document. For a narrative explanation of the following financial
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PERIOD ENDED YEAR (UNAUDITED)
MARCH 31, ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, (6 MONTHS) MARCH 31, SEPTEMBER 30,
------------------------------ -------------- ------------- ---------------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- -------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues ....................... $ 233 $ 327 $ 420 $ 237 $ 563 $ 293 $ 322
Operating income (loss) ............ 26 57 (46) 10 (8) (5) 7
Net income (loss) .................. 24 47 (63) (10) (45) (23) (1)
Outstanding units of equity
participation at year end ......... 76.3 76.3 76.2 136.7 195.7 195.7 195.7
BALANCE SHEET DATA:
Working capital (deficit) .......... 19 (31) (363) (352) 43 45 77
Total assets ....................... 326 491 662 672 650 655 653
Long-term debt(1) .................. 137 164 6 1 295 291 318
Member equity ...................... 131 201 201 212 286 308 285
OTHER DATA:
EBITDA(2) .......................... 42 78 (16) 28 30 20 34
Capital expenditures ............... 102 172 208 12 13 6 5
</TABLE>
- -----------------
(1) Does not reflect the retirement of $28 million of indebtedness in November
1998.
(2) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. It is presented to enhance an understanding
of our operating results and ability to service debt and is not intended to
represent cash flow or net earnings under U.S. generally accepted accounting
principles ("GAAP"). Our use of EBITDA may not be comparable to similarly
titled measures used by other companies.
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
In the table below, we present consolidated income statement data for the
LLC for the fiscal year ended March 31, 1998 and the six months ended September
30, 1998, as if the conversion had been completed on April 1, 1997. We present
consolidated balance sheet information as of March 31, 1998, as if the
conversion had been completed as of such date.
The following information is provided for illustrative purposes only and
does not necessarily reflect what the results of operations or financial
position of the LLC would have been if the conversion had actually occurred on
the dates specified. Please see "Unaudited Pro Forma Financial Information" on
page ___ for a more detailed explanation of this analysis.
UNAUDITED UNAUDITED
YEAR ENDED SIX MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1998
-------------- ------------------
PRO FORMA PRO FORMA
--------- ---------
(IN MILLIONS)
Statement of Operations Data:
Net Revenues $ 563
Operating Income (Loss) (8)
Net Income (Loss) (45)
Balance Sheet Data:
Working Capital 42
Total Assets 650
Long-Term Debt 295
Member Equity 286
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A VOTING
DECISION.
CERTAIN RISKS RELATED TO FEDERAL INCOME TAX CONSEQUENCES
IMPORTANCE OF THE APPRAISAL
The conversion from a cooperative into a limited liability company will be
a taxable transaction. The amount of taxable gain or loss that the Cooperative
and its members must recognize will depend on the aggregate fair market value of
the Cooperative as a going concern as well as the fair market value of each
Class A unit issued to members. Based on the Appraisal, the aggregate tax basis
exceeds the appraised value of our assets. This means that we will have a
nondeductible loss on liquidation and will not incur a tax liability.
Although some members (principally those who purchased all or most of their
units of equity participation in 1982) may incur substantial capital gains, we
expect that most members will incur capital losses. The deductibility of capital
losses incurred by individuals is limited to their capital gains in the taxable
year plus $3,000. Unused capital losses may be carried forward indefinitely.
Accordingly, many members may be unable to fully utilize their capital loss in
the year of the conversion.
In deciding to proceed with the conversion, your Board has relied on
accuracy of the Appraisal. The Appraisal is not binding on the IRS. Accordingly,
while we have no reason to believe that the IRS will challenge the Appraisal as
an accurate determination of the value of the Cooperative, there is a risk that
the IRS might determine that the Cooperative or its members must recognize gain
for federal income tax purposes. Furthermore, the Appraisal is subject to
adjustment for changes occurring between the appraisal date, September 30, 1998,
and the conversion date.
OTHER INCOME TAX RISKS OF THE CONVERSION
In addition to challenging the overall valuation of the Cooperative and the
LLC units received by the unit holders, the IRS might also might challenge: (1)
the apportionment of values to specific assets and the treatment of the
resulting gains or losses as capital gain or loss or ordinary income or loss,
(2) the patronage or nonpatronage character of the income, gains or loss, and
(3) our treatment of the liquidation as a constructive distribution of specific
assets rather than as a distribution of interests in the LLC. There are certain
anti-netting rules that may become operative if such challenges are mounted by
the IRS. Specifically, corporate capital losses cannot be offset against any
income other than capital gains and, likewise, patronage losses, including the
Cooperative's net operating loss carryover, cannot be offset against
nonpatronage income or gain. For example, if the IRS were to successfully
establish higher asset values, either in the aggregate or for specific assets,
anticipated losses could become taxable gains that might be characterized as
nonpatronage sourced which would prevent them from being offset by patronage
sourced losses.
Because we believe that the Special Financial Interests in the LLC that
will be issued to holders of nonqualified written notices of allocation do not
have an ascertainable value, we will not report any amount with respect to such
notices to the IRS. The Appraisal does not address this valuation issue and the
IRS may contend that the Interests have received value that is subject to tax as
ordinary income.
TAX STATUS OF THE LLC
We expect that the LLC will be treated as a partnership for federal income
tax purposes unless there is a change of law or trading in our units is
sufficient to classify the LLC as a publicly traded partnership. This means that
the LLC will pay no income tax and members will pay tax on their share of the
LLC's net income. We have not requested a ruling from the IRS with respect to
the tax treatment of the LLC because tax classification is essentially elective
under current IRS regulations.
If the LLC is treated as a corporation for federal income tax purposes, the
LLC would pay tax on its income at corporate rates (currently a maximum 35%
rate), distributions would generally be taxed again to holders of Class A units
as corporate dividends, and no income, gains, losses or
8
<PAGE>
deductions would flow through to holders of Class A units. Because a tax would
be imposed upon the LLC as an entity, the cash available for distribution to
unit holders would be reduced by the amount of the tax paid. Reduced
distributions could cause a reduction in the value of the LLC units.
TAX LIABILITIES MAY EXCEED CASH DISTRIBUTIONS
It is likely that unit holders may receive allocations of taxable income
that exceed cash distributions from the LLC. This will occur if the LLC
determines that the cash generated by the business is needed to fund the LLC's
activities or other obligations, rather than being available for distribution to
the LLC unit holders. The LLC will endeavor to make distributions at least
sufficient to cover unit holder taxes on income allocations. However, it is
possible that unit holders may be required to pay the tax liability with
personal funds.
PASSIVE LOSS LIMITATIONS; POSSIBLE DISALLOWANCE OF MEMBER INTEREST DEDUCTIONS
It is likely that a member's interest in the LLC will be treated as a
"passive activity" for most unit holders. In the case of unit holders who are
individuals or closely held corporations, this means that a unit holder's share
of any loss incurred by the LLC will be deductible only against such holders'
income or gains from other passive activities, e.g., S corporations and
partnerships that conduct a business in which the holder is not a material
participant. Passive activity losses that are disallowed in any taxable year are
suspended and may be carried forward and used as an offset against passive
activity income in future years. Upon disposition of a taxpayer's entire
interest in a passive activity to an unrelated person in a taxable transaction,
suspended losses with respect to that activity may then be deducted.
Many members have borrowed to purchase their equity interest in the
Cooperative and have been deducting the interest expense. After the conversion,
part or all of such interest expense may not be deductible in the same manner
because it must be aggregated with other items of income and loss that the
member has independently experienced from passive activities and subjected to
the passive activity loss limitation.
LACK OF PUBLIC MARKET FOR CLASS A UNITS; RESTRICTIONS ON TRANSFERS
There is currently no established public trading market for the Class A
units and an active trading market is unlikely to develop. We do not intend to
apply for listing of the Class A units on any stock exchange or on the Nasdaq
Stock Market. Consequently, you may be unable to readily resell your units.
To maintain our partnership tax status, our Class A units and Class B units
may not be traded on an established securities market or readily tradable on a
secondary market (or the substantial equivalent thereof). To help ensure that a
market does not develop, the Operating Agreement prohibits transfers without the
approval of the Board of Directors. The Board of Directors will approve
transfers that fall within "safe harbors" contained in the publicly-traded
partnership rules under the Tax Code, including transfers by gift, transfers
upon death of a member, transfers between family members and other transfers
during the tax year that in the aggregate do not exceed 2% of the total
outstanding Class A and Class B units. If any person transfers units in
violation of the publicly traded partnership rules or without the prior consent
of the Board, we will consider the transfer to be null and void.
INTENSE COMPETITION
Our business operates within highly competitive markets. In the United
States, we compete with other corn processors or refiners, including Archer
Daniels Midland Company, Cargill, Inc. and A.E. Staley Manufacturing Company (a
subsidiary of Tate & Lyle, PLC). Certain competitors are divisions of larger
enterprises which may have greater financial resources than the Cooperative.
Many of our products also compete with products made from raw materials other
than corn. For example, high fructose corn syrup competes principally with cane
and beet sugar and ethanol competes with MTBE and other oxygenate and compliance
alternatives. We believe the principal competitive factors in our markets are
price, product quality and service. We believe the conversion may enhance our
9
<PAGE>
competitiveness by removing impediments to corn procurement that result from the
member corn delivery requirement under the present cooperative structure. In
addition, we are responding to the competitive conditions by seeking to reduce
manufacturing and distribution costs, seeking to maintain and improve product
quality and pursuing activities which will enhance the service we provide to our
customers.
SENSITIVITY TO CORN PRICES
Changes in the price of corn can significantly affect our business. In
general, rising corn prices produce lower profit margins and therefore represent
unfavorable market conditions for the Cooperative. This is especially true when
market conditions do not allow us to pass along increased corn costs to our
customers. In fiscal year 1996 we incurred substantial losses. A primary cause
of the losses was an exceptional increase in corn costs which we were unable to
offset with higher product prices.
The price of corn is influenced by general economic, market and government
factors. These factors include weather conditions, farmer planting decisions,
domestic and foreign government farm programs and policies, global demand and
supply, all of which are beyond our control.
We attempt to mitigate the impact of fluctuations in corn prices by using
sophisticated financial instruments (corn futures contracts). However, such
hedging activities may not result in a reduction in our corn costs or protect us
from sharp increases in corn prices which we have experienced in the past.
LEVERAGE, ABILITY TO SERVICE DEBT AND RESTRICTIVE COVENANTS
As of December 31, 1998, the Cooperative's long-term debt was approximately
$290,000,000. While we believe that future operating cash flow, together with
financing arrangements, will be sufficient to finance current operating
requirements, it is possible our leverage and debt service requirements may make
us more vulnerable to economic or market downturns. If we are unable to service
our indebtedness, we may be forced to reduce or delay planned capital
expenditures, sell assets, restructure our indebtedness or seek additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. In addition, the terms of the
Cooperative's existing debt instruments contain restrictive, financial and
maintenance covenants. These covenants, among other things, place limits on our
ability to make cash distributions to members. For example, cash distributions
may not exceed 80% of our net earnings in any given year, unless certain
financial ratios are satisfied.
GOVERNMENT REGULATION
As a producer of food items, we are subject to extensive regulation by the
FDA and other government agencies. We also are subject to various federal, state
and local laws and regulations with respect to environmental matters. The
failure to comply with applicable laws and regulations may adversely affect our
business, operating results or financial condition.
10
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Information Statement-Prospectus contains forward-looking statements.
These statements are based on management's beliefs and expectations, and on
information currently available to management. Forward-looking statements may be
found under "The Conversion," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Also, forward-looking
statements include statements in which we use words such as "believe," "expect,"
"anticipate," "intend," "will" or similar expressions.
Forward-looking statements involve numerous assumptions, risks and
uncertainties. Important factors that could significantly affect our current
plans, anticipated actions and future financial condition and results include,
among others, those set forth under the heading "Risk Factors." Actual results
may differ materially from those contemplated by any forward-looking statements.
We caution you not to put undue reliance on any forward-looking statements,
which speak only as of the date of this Information Statement-Prospectus.
11
<PAGE>
THE SPECIAL MEETING
GENERAL
The Board of Directors of the Cooperative is presenting the accompanying
ballot for use at the Special Meeting of Members to be held on, ____________,
1999 at ______, local time, at Jackpot Junction, Morton, Minnesota, and at any
adjournments or postponements thereof. This Information Statement-Prospectus and
the enclosed ballot form are first being mailed to the Cooperative members on or
about ____________, 1999.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to approve the merger of the
Cooperative with and into MCP Colorado. A copy of the MCP Merger Agreement is
attached as Appendix A and a copy of the Transaction Agreement is attached as
Appendix C.
WHO CAN VOTE
Members of record at the close of business on ___________, 1999 are
entitled to notice of and may vote at the Special Meeting. On ___________, 1999,
there were ______ voting members. Each member has one vote. If at least 10% of
the membership is present or represented by mail ballot at the Special Meeting,
a quorum will exist.
HOW YOU CAN VOTE
To vote on the proposed MCP Merger, you must use the mail ballot
accompanying this Information Statement-Prospectus. It is the only ballot you
will receive, and no additional ballots will be distributed at any regional
information meeting or the Special Meeting. As provided in the Cooperative's
Bylaws, voting by proxy is prohibited.
If you are unable to attend the Special Meeting, you can mail or personally
deliver the ballot to the Cooperative, or personally deliver the ballot at any
regional information meeting. Two envelopes, one to hold the ballot and one to
return the envelope containing the ballot, are enclosed for your convenience. We
must receive your ballot by the close of business on ____________, 1999 in order
for your vote to be counted. NO PROCEDURES EXIST FOR A MEMBER TO REVOKE A BALLOT
ONCE THE BALLOT HAS BEEN RECEIVED BY THE COOPERATIVE.
VOTES REQUIRED
The affirmative vote of two-thirds of the votes cast, in person or by mail,
at the Special Meeting is required to approve the MCP Merger.
RECOMMENDATION OF THE COOPERATIVE BOARD
The Cooperative Board has unanimously approved the MCP Merger Agreement and
the Transaction Agreement, including the transactions contemplated thereby. The
Cooperative Board believes that the proposed conversion is in the best interests
of the Cooperative and its members and recommends that members vote "FOR" the
adoption of the MCP Merger Agreement and the Transaction Agreement.
12
<PAGE>
THE CONVERSION
REASONS FOR THE CONVERSION
The structure and terms of the conversion from cooperative to limited
liability company form were determined by your Board of Directors and senior
management after extensive investigation of the anticipated financial and other
impacts of the conversion on the Cooperative and its members. In determining
whether to convert to a limited liability company, the Cooperative's Board and
senior management team considered numerous factors. The following is a brief
discussion of those factors.
* As the Cooperative's operations have expanded, it has become increasingly
difficult for members to cost-effectively deliver corn to the
Cooperative's facilities. This has forced members to use "GPA" as a
mechanism to facilitate corn delivery. As a result, the Cooperative is
operating less like a cooperative, and is at risk of losing its tax-exempt
status under the Internal Revenue Code. The conversion to a limited
liability company form will enable the Cooperative to maintain its tax
exempt status at the company level. It also gives the Cooperative
flexibility with respect to corn procurement in order to compete with
other corn wet milling companies, without placing unattractive corn
delivery requirements on members.
* The fact that the Cooperative has incurred substantial net losses in each
of the last two fiscal years and a much smaller loss for the six months
ended September 30, 1998.
* The fact that the cooperative form requires the Cooperative to limit its
membership to corn producers and to distribute its earnings to members
based on the amount of corn each member delivers to the company, rather
than the value of each member's investment.
* Members are currently required to pay self-employment taxes on the
Cooperative's earnings. As a member of the LLC, members will pay no
self-employment taxes on the new company's earnings because members will
not be required to deliver corn.
* The belief of the Board and senior management that, while no assurances
can be given, the liquidity of members' equity interests will be enhanced
by opening up membership in the new company to a broader range of
investors, that is, non-producers.
* The appraisal of American Appraisal Associates(R) that, as of September
30, 1998, the value of the Cooperative as a going concern was $290.6
million and the value per unit on that date was $1.10.
* The alternative courses of action available to the Cooperative, including
continuing to claim cooperative tax status and voluntarily electing
corporate tax status, which would involve double taxation, at both the
entity and member levels.
* The structure of the conversion, including that the conversion would
constitute a taxable transaction and that the Cooperative and most members
would realize a loss rather than a gain.
The foregoing discussion of the factors considered by the Board is not
intended to be exhaustive, but is believed to include all material factors
considered by the Board. In reaching its determination to approve and recommend
the conversion, the Board did not quantify or assign a relative weight to the
above factors.
RECOMMENDATION OF THE COOPERATIVE BOARD
The Cooperative's Board of Directors has approved the conversion and
believes that it is in the best interests of the Cooperative and its members to
convert from a cooperative to a limited liability company. Accordingly, the
Board has unanimously approved the MCP Merger Agreement and Transaction
Agreement and recommends that members of the Cooperative vote "FOR" adoption of
the MCP Merger Agreement and Transaction Agreement. If the conversion is not
consummated for any reason, the Board presently intends to continue to operate
the Cooperative in its current cooperative form.
13
<PAGE>
APPRAISAL OPINION
Because of the importance of fair market values in evaluating the tax
consequences of the proposed conversion, the Cooperative retained American
Appraisal Associates(R), a nationally recognized appraisal firm, to appraise the
value of the Cooperative and the value of the assets that will be deemed
constructively distributed to each of the Cooperative's unit holders (the
"Appraisal"). In the opinion of American Appraisal Associates(R), the fair
market value under the premise of continued use of the Cooperative's business
enterprise was $611 million as of September 30, 1998 and on that date, the fair
market value under the premise of continued use of the minority common equity
value of the Cooperative immediately following the consummation of the
conversion is $1.10 per unit.
The $611 million figure represents the aggregate value of the Cooperative's
assets, net of current liabilities, as a going concern and will be used by the
Cooperative in determining its taxable gains and losses on the constructive
liquidation for income tax purposes as discussed in detail in the tax discussion
that follows.
From the $611 million figure, the Appraisal subtracts long-term debt of
$320.3 million as of September 30, 1998 to arrive at the "as if freely traded
aggregate common equity value" of the Cooperative of $290.6 million. The $1.10
per unit value represents the per unit value of the constructive liquidating
distribution in the hands of the unit holders and is determined by applying
discounts for minority interest and for lack of marketability which, with
rounding, produce an aggregate "closely held minority interest common equity
value" of $215 million or $1.10 per unit. The significance of the Appraisal is
discussed further in the tax discussion that follows.
WE HAVE ATTACHED A SUMMARIZATION LETTER OF THIS OPINION TO THIS DOCUMENT AS
APPENDIX E. YOU SHOULD READ THIS DOCUMENT TO UNDERSTAND THE MATTERS CONSIDERED
AND THE SCOPE OF THE REVIEW MADE BY AMERICAN APPRAISAL ASSOCIATES(R) IN
PROVIDING ITS OPINION. MEMBERS OF THE COOPERATIVE MAY REVIEW THE FULL TEXT OF
THE APPRAISAL REPORT AT THE PRINCIPAL OFFICES OF THE COOPERATIVE.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the conversion of the Cooperative into the LLC. The summary is based on
current provisions of the Internal Revenue Code of 1986, as amended ("Code"),
existing and proposed Treasury regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Subsequent
changes in such authorities may cause the tax consequences to vary substantially
from the consequences described below.
MEMBERS OF THE COOPERATIVE ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION TO THEM.
CHARACTERIZATION OF THE CONVERSION FOR FEDERAL INCOME TAX PURPOSES
For state law purposes, the conversion of the Cooperative into LLC will
consist of two steps: a merger of the Cooperative into a transitory Colorado
cooperative, followed by a merger of the transitory cooperative into the LLC.
For tax purposes, however, the Cooperative will treat the conversion as (1) a
reorganization of the Cooperative into a transitory Colorado cooperative, (2) a
complete liquidation of the Cooperative consisting of the constructive
distribution of its assets to its members and the assumption of its liabilities
by the members, and followed by (3) a constructive contribution of the
distributed assets subject to those liabilities to LLC.
TAX CONSEQUENCES OF THE CONVERSION TO THE COOPERATIVE
The merger of the Cooperative into the transitory Colorado cooperative is a
reorganization that will be treated as a mere change in form as defined in
Section 368(a)(1)(F) of the Code. Such a reorganization has no federal income
tax consequences to either the Cooperative or its equity owners.
The merger of the transitory Colorado cooperative into the LLC will be
treated as a taxable liquidation of the Cooperative. Section 311(b) of the Code
requires a corporation to recognize gain
14
<PAGE>
on liquidating distributions of appreciated property as if it had sold the
property to the distributees. The United States Tax Court has held that a
corporation's gain on distribution of substantially all of the interests in a
partnership must be measured as if the partnership's business was sold in its
entirety, which means that certain factors that may bear on the value of the
membership units of the LLC, such as minority discounts and lack of
marketability, cannot be taken into account by the Cooperative. POPE & TALBOT,
INC. V. COMMISSIONER, 104 T.C. 574 (1995) (decision as to the assets to be
valued), T. C. Memo 1997-116 (memorandum on valuation), currently on appeal to
9th Circuit.
As discussed below, the Cooperative intends to treat the conversion as a
constructive distribution of its assets rather than as a constructive
distribution of interests in the LLC. Accordingly, the Cooperative will
apportion the aggregate appraised value ($611 million, net of current
liabilities, appraised as of September 30, 1998) among its assets and determine
gain or loss asset-by-asset. The Cooperatives' apportionment, which is based in
part on the appraised value of certain assets including the Member Loss
Receivable and the St.Paul Bank investment, and in part on management's judgment
as to other asset values, is as follows:
<TABLE>
<CAPTION>
COOPERATIVE GAIN/LOSS ON 9/30/98 9/30/98 LIQUIDATING
LIQUIDATION* (In millions) VALUES TAX BASIS GAIN (LOSS)
<S> <C> <C> <C>
Current assets (net of current liabilities) .......... $ 70,120 $ 70,120 --
Member Loss Receivable ............................... 15,100 21,532 (6,432)
Property, plant and equipment ........................ 491,120 502,893 (11,773)
LSI investment and intercompany receivable ........... 25,060 25,060 --
St. Paul Bank Investment ............................. 3,800 11,296 (7,469)
Unamortized costs .................................... 3,400 4,724 (1,324)
Other assets ......................................... 2,400 5,237 (2,837)
-------- -------- ---------
Totals ............................................... $611,000 $640,862 $(29,862)
======== ========
Income from discounted satisfaction of qualified written notices of allocation . 5,709
---------
Net income (loss) before net operating loss deduction .......................... (24,153)
Net operating loss deduction** ................................................. (46,300)
---------
Overall loss after net operating loss deduction** .............................. $(70,453)
=========
</TABLE>
- ------------------
* All amounts shown are based on September 30, 1998 figures and will be
adjusted to conversion date values and basis for purposes of determining the
Cooperative's gain or loss on each of its assets.
** The Cooperative's net operating loss carryover is patronage sourced and
therefore may be used only to offset patronage sourced income or gain. See
discussion below.
The above calculations suggest that the Cooperative has a reasonable
cushion to protect it against adverse tax consequences as a result of the LLC
conversion. Nevertheless, the conversion is not free of tax risk because there
can be no assurance that the IRS will not challenge the Cooperative on the
following points: (1) the aggregate values determined by the Appraisal, (2) the
apportionment of values to specific assets and the treatment of the resulting
gains or losses as capital gain or loss or ordinary income or loss, (3) the
patronage or nonpatronage character of the gains or loss, (4) the
characterization of the liquidation as a constructive distribution of specific
assets rather than as a distribution of interests in the Cooperative. The IRS is
not bound by the Appraisal and there are certain anti-netting rules that may
become operative if such challenges are mounted by the IRS. Specifically,
corporate capital losses cannot be offset against any income other than capital
gains and, likewise, patronage losses, including the Cooperative's net operating
loss carryover, cannot be offset against nonpatronage income or gain. For
example, if the IRS were to successfully establish asset values higher of those
shown above either in the aggregate or for specific assets, the anticipated
losses could become taxable gains that might be characterized as nonpatronage
sourced which would prevent them from being offset by losses and operating loss
carryovers that are patronage sourced.
The Cooperative's management and its Board of Directors have evaluated the
tax risks of the conversion with the valuation advice of its outside appraisers
and the tax advice of its legal counsel and have concluded that the benefits of
the conversion substantially outweigh the tax risks.
15
<PAGE>
TAX CONSEQUENCES OF THE CONVERSION TO UNIT HOLDERS
Section 331(a) of the Code provides that amounts received by a shareholder
in complete liquidation of a corporation shall be treated as full payment in
exchange for the shareholder's stock. Accordingly, the Cooperative's equity
holders will recognize any gain or loss inherent in their interest in the
Cooperative. The amount of the gain or loss will depend on the adjusted tax
basis of the members's old Cooperative units and the value of the liquidating
distribution. Such gain or loss will be a long-term capital gain or loss if the
holding period for such old Cooperative units is greater than one year at the
effective time of the conversion.
The amount of the liquidating distribution will be the fair market value of
the LLC units received each Cooperative equity holder. Based on general
principles of valuation, the equity holders should be entitled to give
consideration to the depressing effect on valuation of the lack of marketability
and lack of control that is inherent in a nonpublicly traded LLC interest. The
Appraisal indicates that such discounts will result in per unit values that are
26.0% less than each unit's proportionate interest in the overall appraised
value of the Cooperative's equity. Specifically, the Appraisal values the
Cooperative in the aggregate as a going concern at $611 million (net of current
liabilities but exclusive of long-term debt). This amount will be adjusted to
conversion date values used in determining the Cooperative's tax consequences
arising from the conversion as discussed above. After subtracting debt of $320.3
million, the Appraisal reflects an "as if freely traded aggregate common equity
value" of $290.6 million as of September 30, 1998. This value is then reduced to
$223.8 million by application of a minority discount of 23% and is further
reduced to a rounded $215 million by a discount for lack of marketability. The
$215 million figure produces a per unit value of $1.10 for each LLC unit that is
received by a unit holder in the conversion.
Based on legal counsel's conclusion that discounts for lack of
marketability and lack of control (minority interest) are supportable and on the
determination of those discounts in the Appraisal, the Cooperative intends to
report the liquidating distribution to the unit holders and to the IRS at $1.10
per unit (subject to adjustment to the conversion date value). Although there is
no legal authority that expressly allows minority interest and lack of
marketability discounts in this form of transaction, the IRS litigating position
in the POPE & TALBOT case discussed above vigorously argues that the asset to be
valued at the corporate level in a liquidation is different than the asset to be
valued at the shareholder level because of such discounts. Because the IRS is
not bound by either the Appraisal nor the position of the Cooperative's legal
counsel, the principal tax risk at the Cooperative unit holder level of the
conversion is that the IRS challenges the valuation of the LLC units by
attacking the valuation methodology at the Cooperative level, the propriety of
valuation discounts or the actual percentage discounts applied.
The Cooperative's unitholders will be able to deduct their adjusted basis
in their old Cooperative units from the value of the LLC units received in
determining whether they have realized gain or loss. Many members acquired units
at different times and have a different tax basis for some of their units than
for others. Other members may have purchased their units in private transfers or
inherited units with a basis different than their transferor's basis.
Accordingly, members are likely to have differing tax results depending on their
unit tax basis as discussed below.
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<PAGE>
The Cooperative's analysis suggests that some members (principally those
who purchased some or all of their units in 1982) may incur substantial capital
gains, while most other members will incur capital losses. The following
schedule illustrates some of the per unit gain/loss calculations depending on
when a particular unit was acquired:
<TABLE>
<CAPTION>
GAIN/LOSS PER UNIT* ORIGINAL LIQUIDATING TOTAL GAIN/LOSS
(in millions, except per unit amounts) UNITS TAX BASIS DISTRIBUTION GAIN/LOSS PER UNIT
<S> <C> <C> <C> <C> <C>
Units Issued in 1982 ......................... 57,488 18,798 $ 63,245 $ 44,447 $ 0.77
Units Issued in 1991 ......................... 29,307 41,868 32,243 (9,625) (0.33)
Units Issued in 1994 ......................... 19,722 49,306 21,698 (27,608) (1.40)
Units Issued in 1995 ......................... 28,824 129,709 31,711 (97,998) (3.40)
Units Issued as Qualified Patronage .......... 1,464 7,320 1,611 (5,709) (3.90)
Archer Daniels Midland equity ................ 58,622 119,790 64,493 (55,297) (0.94)
------- ------- -------- ---------- -------
Totals ....................................... 195,428 366,791 $215,000 $(151,791) $(0.78)
======= ======= ======== ========== =======
Liquidation distribution per Unit: $ 1.10
========
</TABLE>
- ------------------
* All amounts shown are based on the September 30, 1998 figures drawn from the
Appraisal and will be adjusted to conversion date values and basis for
purposes of determining each unit holder's gain or loss.
TAX TREATMENT OF CERTAIN UNIT HOLDERS
The tax basis shown in the above schedule is the original issue price and
is applicable to those unit holders that acquired their units in the original
issue. The scheduled basis amounts will not be applicable to units that have
been subsequently transferred by sale, upon death, or as gifts.
Unit holders who acquired their units by purchase from another unit holder
will have a basis equal to their purchase price. Unit holders who acquired their
units from a decedent will have a basis equal to the value of the unit for
estate tax purposes.
For the purpose of determining gain, the Cooperative unit holders who
acquired their units by gift will have a basis equal to the donor's basis.
However, if use of the donor's basis will produce a loss and if the fair market
value at the time of the gift was less than the donor's basis, then the donee's
basis will be the fair market value at the time of the gift. To illustrate, if
the holder of units issued in 1995 for $5 makes a gift, the donee's basis for
purposes of the conversion will be the current fair market value of the gift
($1.10 per unit based on September 30, 1998 figures) and no loss will be
realized by the donee. On the other hand, if a donor who acquired units in 1982
at $0.33 per unit makes a gift of those units, the donee will take the donor's
basis and have the same $0.77 per unit gain as shown on the above schedule.
ACCORDINGLY, CAUTION SHOULD BE EXERCISED BY ANY UNIT HOLDER WHO MAKES GIFTS OF
UNITS IN ANTICIPATION OF THE CONVERSION.
As shown in the above schedule, certain units were issued as patronage
refunds. Holders of units that were issued to them as qualified written notices
of allocation will have a loss on the conversion. The character of the loss as
ordinary loss or as capital loss, however, is uncertain. Redemption of a
qualified written notice of allocation traditionally has been treated as an
ordinary loss under the authority of Revenue Ruling 70-64, 1970-1 C.B. 36, and
Revenue Ruling 70-407, 1970-2 C.B. 52. However, in Notice 87-68, 1987-2 C.B.
378, the IRS suspended Revenue Ruling 70-74 and implicitly suspended Revenue
Ruling 70-407 pending the decision of the U.S. Supreme Court in ARKANSAS BEST
CORP. V. COMMISSIONER, 485 U.S. 212 (1988), which was later decided against the
taxpayer. Original holders may reasonably contend that ordinary loss treatment
is appropriate under general cooperative tax principles because the conversion
represents the completion of a patronage transaction. However, the IRS may well
argue that the adverse decision in ARKANSAS BEST CORP. mandates capital loss
treatment. Purchasers of such units will have a basis equal to their purchase
price and will realize capital gain or loss depending on whether the their
purchase price is less than or greater than the $1.10 per unit value of the LLC
units received.
In the case of nonqualified written notices of allocation, Section
1385(c)(2) of the Code provides that: (A) the basis of the notice in the hands
of the patron to whom such notice was issued shall be
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<PAGE>
zero, (B) the basis of the notice which was acquired from a decedent shall be
its basis in the hands of the decedent, and (C) gain on the disposition of the
notice by any unit holder shall be ordinary income to the extent of the stated
dollar amount of the unit. Distributions with respect to Special Financial
Interests in the LLC into which the nonqualified written notices of allocation
will be converted are extremely uncertain both as to time and as to amount and,
because of the extent of the LLC Board's discretion, there is no assurance that
any amount will ever be paid. Accordingly, the Cooperative intends to take the
position that the nonvoting Special Financial Interests in the LLC that will be
issued to holders of the nonqualified written notices in the conversion do not
have an ascertainable value in the hands of the holders and no amount will be
reported to the IRS with respect to receipt of the Special Financial Interests.
If the IRS were to successfully challenge this position, the holders of
nonqualified written notices who originally received their notices as patrons
would have ordinary income in 1999 to the extent of the value of their Special
Financial Interests in the LLC and other holders would calculate income in
accordance with Code Section 1385(c)(2).
UTILIZATION OF CAPITAL LOSSES BY NON-CORPORATE TAXPAYERS
Noncorporate taxpayers such as individuals, trusts and estates may deduct
capital losses to the extent of capital gains recognized by the taxpayer during
the taxable year, plus $3,000. Unused capital losses may not be carried back but
may be carried forward indefinitely until they are fully utilized or the
taxpayer dies. Thus, an individual Cooperative member who has no other capital
gains or losses could deduct $3,000 per year until the conversion loss is fully
deducted or the member dies. In addition to capital gains the member may realize
on sale of capital assets, it also should be noted that net Section 1231 gains
are treated as capital gains that may be offset by capital loss deductions or
carry forwards.
UTILIZATION OF CAPITAL LOSSES BY C CORPORATIONS
In the case of a C corporation (such as Archer Daniels Midland), capital
losses are deductible only to the extent of capital gains. C corporations may
not use any part of their capital losses to reduce ordinary taxable income. Code
Sec. 1211(a). A C corporation deducts its capital losses against its capital
gains for the taxable year. A C corporation that sustains capital losses in
excess of capital gains in the taxable year has a net capital loss which, in
general and subject to limitations, can be carried back three years and forward
five years until it is used. The amount of net capital loss (whether long or
short-term) carried back or carried forward to another year is treated as a
short-term capital loss in the year to which it is carried. Code Sec.
1212(a)(1).
CONSTRUCTIVE PARTNERSHIP FORMATION
The merger of MCP Colorado cooperative into the LLC will be treated for tax
purposes as a constructive formation of the LLC as a partnership. Accordingly,
the members will be treated as having contributed the assets they constructively
received in the liquidation of the Cooperative subject to the Cooperative's
liabilities. In general, neither gain nor loss is recognized to a partnership or
its partners in the case of a contribution of property to the partnership in
exchange for an interest in the partnership. Code Section 731. The LLC's initial
asset basis will be the aggregate basis of those assets in the hands of the
contributing members which will reflect the discounts from the Appraisal for
minority interest and lack of marketability as shown above.
IMPORTANCE OF THE APPRAISAL TO THE COOPERATIVE AND ITS UNIT HOLDERS
As the above discussion indicates, the Cooperative's tax treatment, the tax
treatment of the Cooperative unit holders and the initial asset basis in the
hands of the LLC all depend in significant part on the accuracy of the Appraisal
which is not binding on the IRS or the courts. While we have no reason to
believe that the Appraisal will not be accepted by the IRS, there can be no
assurance that the IRS will not challenge the values used in determining gain or
loss at the Cooperative or unit holder level or that a court will not sustain
such challenge.
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<PAGE>
IRS INFORMATION REPORTING REQUIREMENTS
The Cooperative is required to file Form 966 notifying the IRS of the
taxable liquidation within 30 days of formal adoption of the plan of merger and
to supplement the filing if the plan is later amended. MCP will be required to
issue a Form 1099-DIV to each unit holder whose units have a value of more than
$600 not later than January 31, 2000, and transmit the information to the IRS
before February 28, 2000.
ACCOUNTING TREATMENT
For financial accounting purposes, the conversion will be treated in a
manner similar to that of a "pooling of interests" transaction under GAAP. Under
this method of accounting, no gain or loss will be recognized at the time of the
conversion and the book value of the assets and liabilities of the Cooperative
at the time of the conversion will carry over to the LLC. However, since the LLC
is not a tax paying entity, any deferred income taxes on the books of the
Cooperative at the time of the conversion will be eliminated. In addition, the
various equity accounts will be consolidated into only two captions -- Class A
Units and Class B Units.
REGULATORY APPROVAL
No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the proposed conversion.
ABSENCE OF DISSENTERS' RIGHTS
Members who object to the MCP Merger will have no appraisal or dissenters'
rights under Minnesota law (i.e., the right to receive, instead of Class A
units, an amount in cash that a court decides is the fair value of their units
of equity participation).
FEDERAL SECURITIES LAW CONSEQUENCES
Under the federal securities laws, Class A units received in the conversion
by persons who are not "affiliates" (as that term is defined under the
Securities Act of 1933, as amended) of the LLC may be resold immediately. Class
A units received in the conversion by "affiliates" of the LLC may be resold only
(1) pursuant to further registration under the Securities Act, (2) in compliance
with Rule 145 under the Securities Act or (3) in transactions that are exempt
from registration under the Securities Act. The foregoing restrictions are
expected to apply to the directors and executive officers of the LLC.
This Information Statement -- Prospectus cannot be used in connection with
resales of Class A units received in the conversion by any person who may be
deemed to be an "affiliate" of the Cooperative or the LLC under the Securities
Act.
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<PAGE>
THE MERGER AGREEMENTS AND THE TRANSACTION AGREEMENT
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE MCP MERGER AGREEMENT,
THE LLC MERGER AGREEMENT AND THE TRANSACTION AGREEMENT, IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SAID AGREEMENTS. THE MCP MERGER AGREEMENT IS ATTACHED
AS APPENDIX A, THE LLC MERGER AGREEMENT AS APPENDIX B AND THE TRANSACTION
AGREEMENT IS ATTACHED AS APPENDIX C TO THIS DOCUMENT.
MERGER WITH MCP COLORADO (MCP MERGER AGREEMENT)
GENERAL
MCP Colorado is a wholly-owned subsidiary of the Cooperative. It has been
formed specifically to effectuate the conversion. Subject to the terms and
conditions of the MCP Merger Agreement and the Transaction Agreement,
immediately before the effective time of the LLC Merger, the Cooperative will
merge with MCP Colorado. MCP Colorado will be the surviving entity. At the
effective time, the separate corporate existence of the Cooperative will cease.
The Articles and Bylaws of MCP Colorado will be substantially identical to those
of the Cooperative as in effect immediately before the merger. The directors and
officers of the Cooperative will be the officers and directors of MCP Colorado.
This merger is a necessary step in the conversion process because Minnesota
law does not permit a Minnesota cooperative, such as the Cooperative, to merge
with a limited liability company. Under Colorado law, cooperatives are permitted
to merge with limited liability companies. In addition, Colorado has been chosen
as the state of organization for the new limited liability company because
Colorado law allows limited liability companies greater freedom and flexibility
to manage their business and affairs than laws in most other states.
CONVERSION OF EQUITY INTERESTS; TREATMENT OF MEMBERSHIP STOCK
Upon completion of the MCP Merger, each member of the Cooperative will be a
member of MCP Colorado. All outstanding shares of the Cooperative common stock
and units of equity participation will be converted automatically into shares of
common stock and units of equity participation of MCP Colorado on a one-to-one
basis. The rights and privileges of the MCP Colorado common stock and units of
equity participation will be the same as the rights and privileges of the
Cooperative common stock and units of equity participation. The outstanding
nonvoting units of equity participation of the Cooperative held by Archer
Daniels Midland Company will also be converted automatically into nonvoting
units of equity participation of MCP Colorado on a one-to-one basis.
The Cooperative currently has outstanding $3,849,000 of patronage refunds
that were originally issued as nonqualified written notices of allocation within
the meaning of Section 1388(d) of the Internal Revenue Code. The nonqualified
written notices were not evidenced by capital stock or by units of equity
participation. Thus, they represent allocated patronage equities that may be
redeemed at the discretion of the Board of Directors and, if such discretion is
not exercised, upon liquidation of the Cooperative after all units of equity
participation have been redeemed at the value determined by the Board of
Directors. Nonqualified written notices represent patronage earnings of the
Cooperative that were allocated to the members in a manner that did not produce
a patronage dividend deduction for the Cooperative and which were not required
to be taken into taxable income of the members when they were issued. The stated
amount of the notices would be deductible by the Cooperative and taxable to the
holders if and when they are redeemed. The entitlements of the holders of
nonqualified written notices in the Cooperative will be converted into
comparable entitlements in MCP Colorado.
MERGER WITH THE LLC (LLC MERGER AGREEMENT)
GENERAL
Prior to the execution of the Transaction Agreement, the LLC was formed as
a Colorado limited liability company. Subject to the terms and conditions of the
LLC Merger Agreement and the Transaction Agreement, immediately after the
effective time of the MCP Merger, MCP Colorado will
20
<PAGE>
merge with the LLC, a Colorado limited liability company, with the LLC being the
surviving company. At the effective time, the separate corporate existence of
MCP Colorado will cease, and the initial membership interest of the LLC held by
the Cooperative will be automatically canceled.
As a result of the MCP Merger and the LLC Merger (the "Mergers"), all
members of MCP Colorado will become members of the LLC, which means that all
members of the Cooperative will be members of the LLC. The business of the
Cooperative will be conducted by the LLC. The directors and officers of the
Cooperative will be the directors and officers of the LLC.
CONVERSION OF EQUITY INTERESTS; TREATMENT OF MEMBERSHIP STOCK
Each outstanding unit of equity participation of MCP Colorado will be
converted automatically into one Class A unit of the LLC. Each outstanding share
of common stock of MCP Colorado will be canceled. Each member owning at least
5,000 Class A units will have one vote, regardless of the number of additional
Class A units owned by the member. The rights and privileges of the Class A
units are set forth in the Operating Agreement. For a description of the
differences between the rights of the holders of Class A units and holders of
Cooperative units of equity participation, see "Comparison of Certain Rights of
Members."
In addition, each outstanding nonvoting unit of equity participation of MCP
Colorado held by Archer Daniels Midland Company will be converted automatically
into one Class B unit of the LLC. A Class B unit is a nonvoting membership
interest. With the exception of the right to vote, Class B units have the same
rights and privileges as the Class A units.
Nonqualified written notices of allocation will not be redeemed as part of
the LLC Merger nor will they be converted in to LLC units. Instead, they will be
designated as Special Financial Interests in the LLC that will possess
entitlements comparable to their present entitlements. Specifically, the LLC
Board of Directors will have the discretion to redeem the Special Financial
Interests for their stated amount and, if that discretion is not exercised, the
Special Financial Interests will have a liquidation entitlement comparable to
what now exists, namely a subordinated right to be paid after each LLC unit
holder has been paid the value of their unit as determined by the Board of
Directors of the LLC. If and when the face amount of the Special Financial
Interests are paid, a special allocation of income or gain will be made to the
holders thereof as taxable income.
EXCHANGE OF CERTIFICATES
There is no requirement to exchange any certificates representing shares of
common stock and units of equity participation of the Cooperative (or MCP
Colorado). After the Mergers, until surrendered to the LLC in a subsequent
transfer, the certificates representing the Cooperative units of equity
participation will be deemed to evidence ownership of the Class A units or Class
B units, as the case may be.
EFFECTIVE TIME
The MCP Merger will take effect upon the later of the filing of the
articles of merger with the Secretary of State of the State of Minnesota and the
filing of the Statement of Merger with the Secretary of State of the State of
Colorado, and the LLC Merger will take effect upon the filing of the statement
of merger with the Secretary of State of the State of Colorado (the "Effective
Time"). The Cooperative anticipates that the MCP Merger and the LLC Merger will
be consummated on ____________, 1999 (the "Closing Date").
EMPLOYEE BENEFIT PLANS
Under the Transaction Agreement, the LLC will honor all benefits accrued
under any Cooperative benefit plan, policy or arrangement in accordance with the
respective terms of such benefit plans and to the extent required by law.
PATRONAGE DISTRIBUTIONS
Within a reasonable period of time after the Effective Time, the LLC will
make patronage distributions to former members of the Cooperative based on
patronage transactions with the
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Cooperative during the fiscal year or portion thereof immediately preceding the
Effective Time. Patronage distributions shall made in cash and equity credits in
a manner consistent with the Cooperative's patronage distribution policy in
effect prior to the Effective Time (and in the case of equity credits, in the
form of Class A units or Class B units, as appropriate).
1996 LOSS PAYABLES
After the Effective Time, the unpaid portion of the Cooperative's operating
loss for the fiscal year ended September 30, 1996 that was assessed against
units of equity participation shall continue as a lien in favor of the LLC
against Class A units received in the LLC Merger.
REPRESENTATION AND WARRANTIES
In the Transaction Agreement, the Cooperative, MCP Colorado and the LLC
each have made representations and warranties as to, among other things, the
organization and good standing of each party, the capitalization of each party
and the corporate power and authority of each party. In addition, the
Transaction Agreement contains representation and warranties of the Cooperative
as to, among other things, (i) its financial statements; (ii) the absence of
undisclosed liabilities; (iii) compliance with applicable laws; (iv) the absence
of legal proceedings; and (v) the absence of material defaults under material
contracts.
CONDITIONS TO CONSUMMATION OF THE MERGERS
The obligations of each party to consummate the Mergers are subject to the
satisfaction or waiver, where permissible, of the following conditions at or
prior to the Effective Time.
(1) the requisite approval by the members of the Cooperative of the MCP
Merger Agreement and the Transaction Agreement;
(2) the requisite approval by the members of MCP Colorado of the LLC Merger
Agreement and the Transaction Agreement;
(3) the absence of any injunction, restraining order or order of any nature
issued by any court of competent jurisdiction, government or
governmental agency enjoining the MCP Merger and LLC Merger;
(4) the effectiveness of the Registration Statement (of which this
Information Statement -- Prospectus constitutes a part) and no
stop-order suspending the effectiveness thereof will have been issued
or no proceedings will have been initiated or threatened by the SEC for
such purpose;
(5) the receipt of all consents, approvals, authorizations and waivers
which are necessary in connection with the MCP Merger and the LLC
Merger, including receipt of consents from Archer Daniels Midland
Company and the Cooperative's lenders;
(6) the accuracy in all material respects of the representations and
warranties of each party to the Transaction Agreement;
(7) the performance in all material respects of all obligations required to
be performed by each party under the Transaction Agreement, MCP Merger
Agreement and LLC Merger Agreement prior to the Effective Time; and
(8) all actions, proceedings and documents necessary to carry out the MCP
Merger and LLC Merger shall be reasonably satisfactory to each party.
As the sole shareholder of MCP Colorado and sole member of the LLC before
the MCP Merger, the Cooperative (through the actions of its Board of Directors)
has approved the LLC Merger Agreement and the Transaction Agreement. No
assurance can be provided that the other conditions precedent to the conversion
will be satisfied or waived by the party permitted to do so. The condition that
cannot be waived includes approval by members of the Cooperative of the MCP
Merger.
22
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CONDUCT OF BUSINESS PRIOR TO CONVERSION
The Transaction Agreement provides that, prior to the Effective Time, the
Cooperative will conduct its business in the ordinary course consistent with
past practice and use good faith efforts to preserve intact its business
organization, properties and the goodwill of its members suppliers and other
business relationships.
Each party has also agreed to use its good faith efforts to take or cause
to be taken all actions, and to do or cause to be done, all things necessary,
proper or advisable under applicable laws so as to permit consummation of the
Mergers as promptly as practicable and otherwise to enable consummation of the
transactions contemplated by the Transaction Agreement, the MCP Merger Agreement
and LLC Merger Agreement. Each party has agreed to cooperate in obtaining
necessary permits, consents, approvals and authorizations of all third parties
and any court, administrative agency or other federal, state or local government
authority.
In addition, each party has agreed that without the prior consent of the
other party it will not, among other things: (1) grant to any person any right
to acquire capital stock or other equity interests, except for allocation of
patronage equities in a manner consistent with past practice; (2) issue any
additional shares of capital stock or other equity interests, except in the
ordinary course of business consistent with past practice; (3) reclassify,
combine, split or amend its capital stock or equity interests; (4) purchase,
acquire or redeem any shares of its capital stock or equity interests, except in
the ordinary course of business; (5) enter into, amend or terminate any material
contract; (6) amend its Articles of Incorporation or Articles of Organization,
as the case may be, or its Bylaws or Operating Agreement, as the case may be, or
any Board policies; (7) other than in the ordinary course of business pursuant
to existing credit arrangements, incur any indebtedness for borrowed money; (8)
make any material capital expenditures other than in the ordinary course of
business; (9) mortgage any of its assets or properties, or except in the
ordinary course, sell any of its material assets or properties; (10) pay any
dividends or make any distributions with respect to its capital stock or equity
interests, except in the ordinary course consistent with past practice; or (11)
agree or commit to do any of the actions listed above.
TERMINATION
The Transaction Agreement may be terminated and the Mergers contemplated
thereby may be abandoned at any time prior to the Effective Time by:
(1) either party if members of the Cooperative fail to approve the MCP
Merger;
(2) mutual written consent of the Cooperative, MCP Colorado and the LLC
(although the Cooperative currently controls MCP Colorado and the LLC);
(3) any party to the Transaction Agreement upon written notice if (a) one
or more of the conditions to its obligations cannot be met, (b) the
other party has defaulted in any material respect under any of the
covenants or agreements under the Transaction Agreement or (c) any
representation or warranty of the other party is or has become
materially untrue or incorrect and in either case, has not been cured
within 30 days after notice thereof; or
(4) either party if the conversion has not been consummated on or before
August 1, 1999.
AMENDMENT
The terms of the Transaction Agreement may be amended or supplemented at
any time by mutual agreement except, following approval of the MCP Merger by
members of the Cooperative, the Transaction Agreement may not be amended if such
amendment would violate applicable law or change the amount or form of the
consideration to be received by members of the Cooperative.
INDEMNIFICATION AND INSURANCE
From and after the Effective Time of the Mergers, the LLC has agreed to
indemnify each present and former director, officer, employee or agent of the
Cooperative or MCP Colorado and
23
<PAGE>
each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture, or other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities, or
expenses arising out of or pertaining to matters existing or occurring at or
before the Effective Time, whether asserted or claimed before or after the
Effective Time, to the fullest extent permitted by law. The LLC may purchase
insurance coverage against any such losses, claims or expenses, but is not
obligated to do so.
24
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Minnesota Corn
Processors, Inc. We derived this information from the consolidated financial
statements of Minnesota Corn Processors, Inc. The audited financial statements
have been audited by Clifton Gunderson L.L.C., independent auditors.
Fiscal year 1997 was a six-month period because Minnesota Corn Processors,
Inc. changed its fiscal year end from September 30 to March 31.
You should read the financial data presented below along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as the consolidated financial statements and related notes that we include
at the end of this document.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR (UNAUDITED)
MARCH 31, ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, (SIX MONTHS) MARCH 31, SEPTEMBER 30,
------------------------------ -------------- ------------- ---------------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- -------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues ....................... $ 233 $ 327 $ 420 $ 237 $ 563 $ 293 $ 322
Cost of product sold ............... 195 256 441 207 525 276 290
Gross proceeds (loss) .............. 38 71 (21) 30 38 17 32
Selling, general and
administrative expenses ........... 12 14 26 20 46 22 25
Operating income (loss) ............ 26 57 (47) 10 (8) (5) 7
Interest expense ................... 6 11 19 20 32 20 12
Other income (expense) ............. 4 1 3 -- (5) 2 4
Net income (loss) .................. 24 47 (63) (10) (45) (23) (1)
Outstanding units of equity
participation at year end ......... 76.3 76.3 76.2 136.7 195.7 195.7 195.7
BALANCE SHEET DATA:
Working capital (deficit) .......... 19 (31) (363) (352) 43 45 77
Total assets ....................... 326 491 662 672 650 655 653
Long-term debt(1) .................. 137 164 6 1 295 291 318
Members' equity .................... 131 201 201 212 286 308 285
OTHER DATA:
EBITDA(2) .......................... 42 78 (16) 28 30 20 34
Capital expenditures ............... 102 172 208 12 13 6 5
</TABLE>
- ------------------
(1) Does not reflect the retirement of $28 million of indebtedness in November
1998.
(2) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. It is presented to enhance an understanding
of our operating results and ability to service debt and is not intended to
represent cash flow or net earnings under U.S. GAAP. Our use of EBITDA may
not be comparable to similarly titled measures used by other companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED
UNDER "RISK FACTORS", THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED.
OVERVIEW AND OUTLOOK
Following several years of attractive growth, the Cooperative sustained
major losses in fiscal years ending in 1996, 1997 and 1998. The primary reason
for the losses was a significant expansion of high fructose corn syrup ("HFCS")
capacity in North America ahead of industry demand which has been, however,
growing at approximately 5% per year. The supply/demand caused sweetener prices
to fall sharply and made these producers unprofitable in 1996 and 1997. Since
HFCS capacity utilization dropped to 68% in 1996, some withdrawal of capacity
and the continuing demand growth has returned the HFCS capacity utilization to
the 86-90% rate. This recovery has been in line with the industry's history in
dealing with these imbalances that occur approximately every 8-10 years. The
recovery is generally fairly quick.
The other major factor contributing to the losses sustained during 1996 -
1997 was a sharply higher corn cost. Corn reached a historical high, with the
average cost of fiscal 1996 corn increasing by 76%. In late 1997, corn returned
to more normal levels and has actually fallen in late 1998 below normal lows.
This has helped the Cooperative to return to profitability at the present time.
In fiscal 1999, the Cooperative has addressed those items within its
control in order to be properly positioned when industry prices rebounded to
normal levels. The Cooperative increased volume to basically full capacity,
while reducing operating costs per bushel to target levels, and increasing
efficiency. Concentration on customer service and quality of products will
continue to establish an outstanding customer base. Capital expenditures were
directed to cost reduction projects at the processing facilities.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997
NET SALES. Net sales increased 9.9% from $293 million to $322, while grind
increased 8.3 million bushels or 14.9%. Increased sweetener volumes and prices
($32 million) were offset by decreases in starch (8%) and ethanol (18%) sales.
COST OF PRODUCTS SOLD. Cost of products sold increased $14 million or 5.1%.
Increases in grind accounted for a $21 million increase in corn costs which was
offset by a savings of $6 million due to a lower per bushel cost. The ethanol
producer credit recognized in 1998 was $3 million greater than in 1997.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $3 million. Leased railcar costs accounted
for $2 million (66.7%) of the overall increase. LSI's general and administrative
costs increased $2 million primarily due to higher labor costs and contractual
services.
NET OPERATING INCOME. Net operating income increased from a loss of $5
million to a profit of $7 million or an improvement of $12 million. This is
principally due to lower per bushel corn costs ($6 million) and increased
operational efficiencies on a per unit basis ($8 million), offset by slightly
higher selling, general and administrative expenses.
NET PROCEEDS. Net proceeds improved from a loss of $23 million to a loss of
$1 million, an improvement of $22 million. Improvement of $12 million in net
operating income, $8 million in financing costs, and $2 million in other income
account for the majority of the increase in net proceeds.
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YEAR ENDED MARCH 31, 1998 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
Note this comparison is necessary due to the change of fiscal years from
September 30 to March 31. These two periods compare the first full new year
(3/31/98) with last full old fiscal year (9/30/96).
NET SALES. Net sales increased from $420 million to $563 million or $143
million (34%). Total grind increased by 63.5%, principally due to increased
capacity from the completion of expansion in both Columbus and Marshall
facilities. Volume increases were primarily in 55 HFCS (144.1%) and ethanol
(54.0%). These volume increases were a direct result of having a full year's
production from capacity expansion. These volume increases were offset by
sweetener price decreases of 25-35% and starch and ethanol decreases of 10%. The
inclusion of LSI sales for a full year in 1998 as compared to a half year in
1996 added $47 million to net sales or 32.9% of the overall increase.
COST OF PRODUCT SOLD. Cost of product sold increased $84 million (19%). The
cost of corn only increased $8 million, with $109 million increase due to higher
grind but offset by $101 million decrease due to cost per bushel declining by
37%. Increases in labor, depreciation, repairs, and utility costs, as a result
of increased grind and production, account for $38 million (45.2%) of the
overall increase. The inclusion of LSI operations for a full year in 1998 as
compared to a half year in 1996 increase the cost of goods sold by $39 million
or 46.4% of the overall increase.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. These expenses increased $20
million. Leased railcar costs increased $4 million due to more railcars needed
for the increase in sales volumes. Selling and general and administrative costs
are up $5 million primarily due to increases in administrative labor cost, bad
debts, and legal and audit fees. The inclusion of LSI operations for the entire
year of 1998 as compared to a half year in 1996 added $12 million to this cost
or 60% of the overall increase.
NET OPERATING INCOME. Net operating income improved from a loss of $47
million to a loss of $8 million or $39 million (83%). The return to more normal
corn costs added $101 million but this was offset by the decrease in sweetener
prices of 25-30% or approximately $75 million. Improvements in operational
efficiencies account for the additional improvements.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE. Interest expense increased $13
million due to higher interest rates and an increased debt load for five months
of fiscal year 1998 prior to the recapitalization and refinancing of the debt in
late August 1997. Other expense increased by $8 million due to the recognizing
of a loss on sales contracts of $8 million.
NET PROCEEDS. Net proceeds improved from a loss of $63 million to a loss of
$45 million or $18 million (28.6%). This is principally due to the improvement
in the operating proceeds ($39 million) offset by the higher financing cost ($13
million) and the recognition of the loss on a sales contract ($8 million).
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
NET SALES. Net sales increased by $93 million or 28.4%, on slightly
decreased grind of 6.3%. The decreased grind was primarily related to a
cessation of ethanol production for two months due to the economic infeasibility
as a result of very high corn cost. The increase in net sales was primarily due
to the first year of operations of the 55 HFCS plant in Columbus, NE, as well as
the inclusion of six months of operations and sales of Liquid Sugars, Inc., a
subsidiary of the Cooperative, acquired in March 1996.
COST OF PRODUCT SOLD. Cost of products sold increased by $185 million or
72.3%. The cost of corn increased significantly by $107 million. This was
primarily due to the average price of corn per bushel increasing 76.1% which
contributed $126 million of increased cost, offset by ($18 million) by the
decreased grind. Other costs increased $15 million including labor,
depreciation, utilities and supplies, as a result of starting up the 55 HFCS
plant in Columbus, NE. The consolidation of six months of operations of LSI with
the Cooperative added $56 million to the cost of products sold.
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SELLING, GENERAL AND ADMINISTRATION. These expenses increased $12 million.
Of this, approximately $2 million was additional railcar cost and $1 million was
in selling and administrative expense increase. The remaining $9 million
represents the first time overhead of LSI, acquired in March, 1996.
NET OPERATING INCOME. Net operating income decreased from $57 million to a
loss of $47 million or a decrease of $104 million. This is principally due to
the increased cost of corn ($107 million).
INTEREST EXPENSE AND OTHER COSTS/INCOME. Interest expense increased by $8
million (72.7%) due to an increased debt load as a result of finalizing the
expansion project and funding a negative cash flow. Other income increased by $2
million which is primarily the result of an increase in the patronage dividend
received form the St. Paul Bank for Cooperatives.
NET PROCEEDS. Net proceeds decreased from a profit of $47 million to a loss
of $63 million or a $110 million decrease. The increase in corn cost of $107
million due to the higher per bushel unit cost is principally responsible for
the decrease in net proceeds.
LIQUIDITY AND CAPITAL RESOURCES
The Cooperative expects that cash flow from operations and proceeds from
its existing credit lines will be sufficient to fund operations, to provide
adequate capital expenditures (excluding any major expansion), and to make
distributions to its members for the near future.
In late 1997, the Cooperative sold a 30% equity interest (in the form of
Nonvoting Units of Equity Participation) to Archer Daniels Midland Company for
approximately $120 million. These funds were utilized to pay down debt (from
$410 million to $290 million) and to refinance existing short-term debt with
long-term debt. In connection with the passive equity investment, Archer Daniels
Midland Company and the Cooperative entered into a Stockholder Agreement dated
August 27, 1997. This agreement sets forth the rights and obligations of Archer
Daniels Midland Company as a nonmember patron of the Cooperative. The agreement
restricts the Cooperative from, among other things, materially changing its
principal business, disposing or otherwise transferring substantially all of its
assets, making material changes to its corn delivery program and incurring
capital expenditures in excess of $250,000 without the consent of Archer Daniels
Midland Company.
In 1997, the Cooperative also sold $290 million of first mortgage notes in
a private offering, primarily to major insurance companies. The maturities range
from seven to fifteen years, with no significant principal payments due until
September 30, 2003. The average interest rate, including a variable rate
portion, is approximately 71/4% at present. The notes restrict the Cooperative
from incurring additional long-term debt and disposing of assets, and require
the Cooperative to maintain certain financial ratios, including a minimum total
equity amount which increases annually by 20% of net earnings until the ratios
are met. As of December 31, 1998, the Cooperative was in compliance with all
covenants and restrictions. The notes are collateralized by mortgages on the
Marshall and Columbus facilities.
In addition, the Cooperative has established a $50 million revolving line
of credit with Harris Trust and Savings Bank and US Bancorp Ag Credit. At the
current time, there is no amount outstanding under the revolver. This credit
line, which protects the Cooperative for seasonal cash fluctuations, terminates
August 27, 2000. The line of credit requires the Cooperative to maintain a
minimum net working capital of $25 million at all times, a minimum equity amount
equal to the sum of $270 million plus 20% of consolidated net earnings for each
fiscal year and a minimum cash flow of $0 on March 31, 1999. In addition, the
line of credit restricts the ability of the Corporation to (1) make capital
expenditures, (2) make certain distributions, (3) create liens, (4) incur
indebtedness and (5) sell assets and properties.
The plants were both expanded to double capacity with completion in 1997.
The plants are modern, cost efficient facilities. Capital expenditures will
remain moderate in the near future. Capital expenditures in the current year
will be about $15 million and the projection for next year is approximately $20
million. Capital expenditures totaled $165 million in 1995 and $185 million in
1996. These large expenditures were in large part due to the $320 million
expansion during those years. There are no significant expansions planned at
present.
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Net cash flow from operation (EBITDA) improved to a positive $30 million in
fiscal 1998 (3/31/98) from a negative $16 million in fiscal year ended 9/30/96.
This improvement is a result of increased depreciation, improved gross margins
and stronger volume. The benefit of increased cash flows from operation and
lower capital expenditures requirements in fiscal 1998 resulted in significant
improvement in net cash flows.
In 1996, the net losses, together with higher working capital requirements
and very elevated capital expenditures created a serious negative cash outflow
which was funded primarily by borrowings (increasing $195 million).
Total assets at September 30, 1998 were $653 million, essentially the same
as the prior year. Working capital was $77 million at September 30, 1998 and $45
million at September 30, 1997.
Capital expenditures were $5 million in the six month ended 9/30/98 and $6
million in the prior year's period.
Total assets at September 30, 1996 increased $171 million over the prior
year, due to the capital expansion project with total capital expenditures of
$208 million. Debt increased $195 million. Working capital equaled a negative
$363 million due to the reclassification of all debt to a current liability.
YEAR 2000
Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modification in order to
be year 2000 compliant. This issue may have a material adverse affect on the
operations and financial performance of the Cooperative because computer and
other systems are integral parts of the Cooperative's manufacturing and
distribution activities as well as its accounting and other information systems
and because the Cooperative will have to divert financial resources and
personnel to address this issue.
The Cooperative is in the process of reviewing its computer and other
hardware and software systems and has recently begun upgrading systems that it
has identified as not being year 2000 compliant. The existing systems will be
upgraded either through modification or replacement. The Cooperative currently
anticipates that this upgrading will be completed during fiscal year 1999. The
Cooperative has alternate plans in the event that critical systems upgrading is
not completed on time which the Cooperative believes are sufficient to meet the
Cooperative's internal needs.
Although the Cooperative is not aware of any material operational
impediments associated with upgrading its computer and other hardware and
software systems to be year 2000 compliant, the Cooperative cannot make any
assurance that the upgrade of the Cooperative's computer systems will be free of
defects or that the Cooperative's alternate plans will meet the Cooperative's
needs. If any such risks materialize, the Cooperative could experience material
adverse consequences to its operations and financial performance, substantial
costs or both.
Year 2000 compliance may also adversely affect the operations and financial
performance of the Cooperative indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of the Cooperative's
suppliers and customers. The Cooperative has begun contacting its significant
suppliers and customers as part of its Year 2000 compliance action plan to
identify any potential year 2000 compliance issues with them. The Cooperative is
currently unable to anticipate the magnitude of the operational or financial
impact on the Cooperative of year 2000 compliance issues with its suppliers and
customers.
The Cooperative expects to incur up to $500,000 during fiscal year 2000 to
resolve the Cooperative's year 2000 compliance issues. All expenses incurred in
connection with becoming year 2000 compliant will be expensed as incurred, other
than acquisitions of new software or hardware, which will be capitalized.
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BUSINESS
OVERVIEW
Minnesota Corn Processors, Inc. is an agricultural processing and marketing
cooperative that operates corn wet milling facilities in Minnesota and Nebraska.
Formed in 1980, the Cooperative commenced wet milling operations in Marshall,
Minnesota in 1983. During the mid-1990s, the Cooperative experienced significant
growth, spending approximately $337 million for expansion of existing processing
facilities and acquisition of storage and distribution facilities.
Based on total production capacity, the Cooperative is one of the largest
corn wet millers in the United States. In addition, the Cooperative is the
second largest producer of ethanol in the United States and a leading producer
of high quality corn sweetener products for the soft drink and food industries.
Our primary products include corn sweeteners, corn starch, ethanol and feed
co-products. We supply a broad range of customers in a variety of industries.
The Cooperative today has over 5,300 members. The Cooperative generally
distributes its net income each year to members as patronage or value-added
payments. Each member's payment is based on the earnings of the Cooperative
attributed to the corn delivered by the member. The Cooperative may withhold a
portion of its annual earnings for use as capital.
THE CORN SWEETENER AND ETHANOL MARKETS
HIGH FRUCTOSE CORN SYRUP AND CONVENTIONAL CORN SYRUP
Since the invention of starch-based sweeteners in the early 1800's,
researchers have tried to develop a starch-based sweetener that is as sweet as
cane or beet sugar. After years of research, the desired result was achieved
through the process of rearranging glucose molecules into the chemical isomer
fructose, known as "glucose isomerization." As a result of the development of
glucose isomerization, the corn refining industry now produces a sweetener --
high fructose corn syrup -- that has a sweetness level equivalent to that of
sucrose. Since the development of HFCS, the corn sweetener industry has grown
rapidly. According to the USDA, per capita consumption of corn sweeteners grew
at a compounded annual growth rate of 2.54% between 1985 and 1996 as compared to
a growth rate of 0.51% for sugar.
In recent years, there has been good market growth for both high fructose
corn syrup and the more traditional corn sweeteners conventional corn syrup and
dextrose. While much of this growth is attributable to the soft drink industry's
switch from sucrose to high fructose corn syrup, the baking industry has also
contributed to the industry's growth in its switch from primarily dry sucrose to
42 HFCS. While corn sweeteners are priced competitively with sugar, they have
earned their place in the baking industry through other advantages and are
likely to retain their place in the foreseeable future with continued growth of
3% to 4% per year. Corn sweeteners are more consistent in quality than sucrose
and are expected to continue to replace sucrose due to the savings in labor cost
generated by the ease of use and adaptability of corn sweeteners in today's
highly automated baking industry.
Based on continued strong domestic demand and the anticipation of increased
exports to Mexico, significant expansion of HFCS capacity was completed during
the last few years. Archer Daniels Midland Company, Cargill, Inc., A.E. Staley
Manufacturing Company and others joined the Cooperative in expanding their
production capacities. In total, 55 HFCS production capacity throughout the
industry increased from 12.5 billion pounds dry in 1995 to approximately 15.6
billion pounds dry in 1997, an increase of approximately 25%. The 42 HFCS
segment also expanded by approximately 25% over that time period from 7.9
billion pounds to 9.9 billion pounds.
As a result of the recent industry-wide expansions, the HFCS industry
entered a period of supply and demand imbalance in 1996 and 1997, resulting in a
decline in the industry capacity utilization rate to around 70%. Industry
analysts have estimated that the industry is currently operating at levels
ranging from approximately 80% to 85% of capacity. The rebound in the capacity
utilization rate is due to (1) continued growth in domestic consumption, and (2)
shuttered capacity when Golden Technologies shut down its Johnstown, Colorado
operations which were reportedly producing
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approximately 228 million pounds (dry) of HFCS and Cargill, Inc. shut down its
55 HFCS facility in Dayton, Ohio. The Cooperative is not aware of any additional
capacity expansions currently underway in the domestic HFCS industry, indicating
that over the next few years, supply and demand should rebalance as demand grows
and industry production should reach almost full capacity.
As industry capacity utilization rates dropped dramatically in 1996, major
HFCS users were able to negotiate advantageous contracts for the 1997 calendar
year, gaining significant price reductions. In 1998, prices began to stabilize
and many industry experts expect pricing to increase in 1999 and 2000, to
reflect a more balanced supply/demand situation.
The USDA has estimated that in 1998 the 55 HFCS segment will grow at
approximately 4% to 4.5% and the 42 HFCS segment will grow approximately 3% in
the U.S. The soft drink firms will drive much of this growth as they continue to
position themselves as "total beverage companies," as evidenced by the
introduction of over 200 new soft drinks, juices, teas and punches over the last
two years alone. In addition, the Mexican market offers the opportunity for
dramatic volume growth during the next 1 to 2 years; Canada has also experienced
conversion from sucrose usage to use of 55 HFCS.
According to the USDA, U.S. exports of HFCS to Mexico rose to 78,000 metric
tons (dry basis) in 1996 from only 9,000 tons in 1991. Under NAFTA, the Mexican
import tariff on U.S. HFCS fell to 9% in 1997, and is scheduled to decrease by
1.5% each year thereafter to zero in 2003. Mexican demand for HFCS is growing as
bottlers adopt new technology to handle liquid sweeteners. While none of the
major soft drink bottlers have announced a complete switch to using HFCS in
their Mexican soft drinks, some of the smaller brands apparently have switched.
World demand for HFCS sweetener is expected to increase from 20 billion pounds
in 1995 to 26.6 billion pounds by the year 2000.
ETHANOL
Ethanol has important applications and is used primarily as a high quality
octane enhancer and an oxygenate capable of reducing air pollution and improving
automobile performance. As a fuel additive, the demand for ethanol is derived
from the overall demand for gasoline, as well as the competition of ethanol
versus competing oxygenate products and technologies. Motor vehicles in the U.S.
consume more than 130 billion gallons of gas every year.
The Cooperative currently benefits from three economic incentives to
produce ethanol. First, in Minnesota, there is a state producer payment of 20
cents per gallon for the first 15 million gallons per plant for a total of $3
million annually to ethanol producers for ten years. For the Cooperative, this
producer payment is due to expire in 2001. Second, Nebraska also has a similar
program with an incentive of 20 cents for the first 25 million gallons. For the
Cooperative, these payments will continue until at least the year 2000. The
Cooperative currently is receiving the limit of $8 million per year from both
state programs. Third, ethanol users can claim a 5.4 cents per gallon exemption
from the federal gasoline excise tax. This federal ethanol tax subsidy, which
was set to expire in 2000, has been extended through December 31, 2007. The
exemption will gradually drop to 5.1 cents in 2005.
A large jump in corn prices in 1996 caused ethanol production variable
costs to exceed selling prices, resulting in a sharp reduction in production as
corn processors sought to curtail losses. The Cooperative shut down its Marshall
ethanol production plant from July 14, 1996 until September 12, 1996.
If the federal ethanol tax incentive or state incentive payments are
eliminated or sharply curtailed, management believes that decreased demand for
ethanol will result. The Cooperative's management is pursuing a strategy to
reduce the Cooperative's reliance on ethanol through growth in other product
lines. Evidence of the Cooperative's efforts can be seen in the portion of the
Cooperative's total sales represented by ethanol. In fiscal year 1993, ethanol
sales represented 41% of the Cooperative's total sales while in fiscal year
1999, ethanol sales generated only 20% of the Cooperative's total sales.
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CORN PROCUREMENT
Each unit of equity participation held by a member obligates the member to
deliver annually one bushel of corn to the Cooperative as part of the
Cooperative's Corn Delivery Program. The Corn Delivery Program has been modified
by the Cooperative so that corn delivery is now on a voluntary rather than
mandatory basis. Members of the new limited liability company will not be
obligated to produce or deliver corn to the company.
Following the conversion, the LLC will continue to require the same
quantities of corn for processing as are currently required. In order to fulfill
those requirements, the LLC will be required to acquire substantial quantities
of corn in the marketplace. To reduce the price risk of fluctuations in the corn
market, the Cooperative has established a policy of hedging corn to cover fixed
price and volume sales contracts for its finished products. The Cooperative may
also hedge a portion of its anticipated non-contracted production requirements.
The instruments used are principally readily marketable exchange traded futures
contracts. The changes in market value of the contracts have a high correlation
to the price changes of the base commodity. Also, the underlying commodity can
be delivered against the contracts. In order to match revenue and expense, any
gains or losses arising from open and closed hedging transactions are included,
through inventory, in cost of goods sold at the time the product is sold.
The hedging policy evolves around the fundamental as well as technical
outlook of the CBOT, the U.S. and world supply and demand outlook for grain, and
the amount of risk both will have in determining the net price of corn for the
Cooperative's projected grind demand. Management will continuously monitor the
amount of risk and make appropriate changes based on projected and actual costs
of corn, sales of product, production costs, and administrative expenses.
WET MILLING OPERATIONS
Corn wet milling increases the nutritional and economic value of the corn
by separating it into homogeneous fractions. Although the wet milling process
was originally designed to produce relatively pure starch for industrial food
uses, the process now results in the optimum use and maximum value for each
fraction of the corn kernel.
A typical bushel of corn weighs 56 pounds and contains approximately 72,800
kernels. Most of the weight is the starch, oil, protein and fiber, with some
natural moisture. Each bushel of corn can yield:
* 31.5 pounds of starch or
* 34.0 pounds of sweetener or
* 2.5 gallons of fuel ethanol and
* 12.1 pounds of gluten feed and
* 2.7 pounds of gluten meal and
* 1.8 pounds of corn oil
A kernel of corn sliced lengthwise from top to bottom will disclose the
following primary components:
HULL. The hull is the fine skin on the outside of the kernel that protects
it from deterioration. It is water resistant and is undesirable to insects and
micro-organisms. Hulls go mostly into corn gluten feed for livestock, poultry
feeds and pet foods.
STARCH. Starch is found at the top, middle and on the sides of the kernel.
This is the most abundant constituent and is used in making starches and
sweeteners.
GLUTEN. Gluten is the dark portion inside the kernel, although some gluten
is mixed with the starch granules. Gluten contains the majority of the protein
found in a kernel of corn. Separated and purified, gluten becomes corn gluten
meal which is used in animal feeds.
GERM. Germ is the seed-like pod at the bottom of the kernel in the center
and is the source of corn oil. The germ is important for food, drug and
industrial uses. About 50% of the germ is corn oil. After removal of the oil,
germ becomes a component of corn gluten meal or corn gluten feed and small
amounts of oil are included in the various feed products.
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WATER. Approximately 15% of the kernel is water. It becomes part of the
steepwater in which the refining is initiated. Steepwater is rich in vitamins,
especially the B complex vitamins and is used in animal feed. Corn steepwater
is also used in the manufacture of antibiotics.
Corn is run through a process which generates the germ, gluten feed, gluten
meal, and finally starch. The starch is then converted into ethanol or dry
starch, or further processed into sweeteners or other starch-based products. The
flow chart below shows the products generated in the wet milling process.
[GRAPHIC OMITTED]
RECEIVING. The Cooperative receives its corn by truck. Before accepting a
truck-load, the corn is tested for quality. The Cooperative has the right to
refuse any shipment of corn if it does not meet its quality standards. Receiving
staff inspect arriving corn shipments and clean them twice to remove dust,
chaff, and foreign materials before steeping. Each facility has on-site storage
capacity for approximately 1 million bushels of corn.
STEEPING. Each steep, a stainless steel vat, holds corn for 30 to 40 hours
soaking in 125 degree Fahrenheit water, increasing the corn's moisture levels
from 15% to 45% and causing the corn to more than double in size. The addition
of 0.2% sulfur dioxide to the water prevents excessive bacterial growth in the
warm environment. As the corn swells and softens, the mild acidity of the
steepwater begins to loosen the gluten bonds within the corn and release the
starch. After steeping, the corn is coarsely ground to break the germ loose from
other components. Steepwater is condensed to capture nutrients in the water for
use in animal feeds. The ground corn, in a water slurry, flows to the germ
separators.
GERM SEPARATION. Cyclone separators spin the low density corn germ out of
the slurry. The germs, containing about 85% of corn's oil, are pumped onto
screens and washed repeatedly to remove any starch left in the mixture. The
Cooperative sells its germ on a contract basis to other oil processors, who then
extracts the oil from the germ. The oil is then refined and filtered into
finished corn oil. The germ residue is saved as another useful component of
animal feeds.
GRINDING AND SCREENING. The corn and water slurry leaves the germ separator
for a second, more thorough grinding in an impact or attrition-impact mill to
release the starch and gluten from the fiber in the kernel. The suspension of
starch, gluten and fiber flows over fixed concave screens which catch fiber but
allow starch and gluten to pass through. The fiber is collected, slurried, and
screened again to reclaim any residual starch or protein, then piped to the feed
house as a major ingredient of animal feeds. The starch-gluten suspension,
called mill starch is piped to the starch separators.
STARCH SEPARATION. Gluten has a lower density than mill starch. By passing
mill starch through a centrifuge, the gluten is readily spun out for use in
animal feeds. The starch, with just four to five percent protein remaining, is
diluted, washed 8 to 14 times in hydro clones to remove the last trace of
protein and produce high quality starch, typically more than 99.5% pure. Some of
the starch is dried and marketed as unmodified corn starch and some is slightly
modified, but most is converted into corn sweeteners and ethanol.
STARCH CONVERSION. Starch, suspended in water, is liquified in the
presence of acid and/or enzymes which convert the starch to a low-dextrose
solution. Treatment with another enzyme
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continues the conversion process. Throughout the process, refiners can halt acid
or enzyme actions at key points to produce the right profile of sugars like
dextrose and maltose to meet different needs. In some sweeteners the conversion
of starch to sugars is halted at an early stage to produce low-to medium
sweetness. In others, the conversion is allowed to proceed until the sugar is
nearly all dextrose. The sweetener product is refined in filters, centrifuges
and ion-exchange columns, and excess water is evaporated. Corn sweeteners are
sold directly in the form of heavy corn syrup or HFCS.
FERMENTATION. In yet another application to corn refining, enzymes modify
corn starch to produce feedstock suitable for traditional fermentation methods.
The result of the fermentation is ethanol, which corn refiners distill to remove
excess water and sell for a variety of uses. Carbon dioxide, a by-product of
fermentation, also may be sold to beverage manufacturers as the "fizz" in soft
drinks.
PRODUCTS
The Cooperative's primary products groups include corn sweeteners, ethanol,
corn starches and feed products. Information about each of the product groups is
provided below. Through the first seven months of fiscal year 1999 (April 1,
1998 through October 31, 1998), the approximate percentages of MCP's total sales
associated with each of these product groups were: corn sweeteners - 50%;
ethanol - 20%; corn starches - 5% and feed products - 25%.
CORN SWEETENERS
HFCS. The Cooperative produces two types of high fructose sweeteners: 42
HFCS and 55 HFCS. Both syrups share advantages -- stability, high osmotic
pressure, and crystallization control -- but each offers special qualities to
food and beverage manufacturers and consumers. 42 HFCS is popular in canned
fruits, condiments and other processed foods which need mild sweetness that
won't mask natural flavors. 55 HFCS has earned a commanding role in soft drinks,
ice cream and frozen desserts.
SYRUPS. Corn syrup is used in a variety of ways in food products. The most
common use for corn syrup is as a sweetener for food products. However, corn
syrups are adaptable to many uses and therefore have other less known
advantages. Corn syrups can depress the freezing point of frozen products to
prevent crystal formation in ice cream and other frozen desserts. Because of its
effect on viscosity, corn syrup is added to salad dressings and condiments to
ensure the product pours at manageable rates. In lunch meat and hot-dogs, corn
syrups provide the suspension to keep other ingredients evenly mixed, and, like
other corn products, the basic syrups can improve textures and enhance colors
without masking natural flavors, as in canned fruits and vegetables. The
Cooperative manufactures a number of corn syrups which offer a broad range of
functionalities.
ETHANOL
Ethanol has several major applications: (1) as an octane enhancer in fuels;
(2) as an oxygenated fuel additive for the purpose of reducing ozone and carbon
monoxide vehicle emissions; and (3) as a non-petroleum-based gasoline
substitute. Approximately 95% of all ethanol is used in its primary form for
blending with unleaded gasoline and other fuel products. The implementation of
the Federal Clean Air act has made ethanol fuels the most important domestic
renewable fuel, allowing the country to meet its environmental goals and reduce
imports of petroleum based fuels. Ethanol used as a fuel oxygenate, provides one
of the easier, less expensive means to control carbon monoxide in problem areas.
STARCHES
Starch is one of nature's major renewable resources, and a mainstay of our
food and industrial economy. Starches have a wide variety of uses. On average,
each ton of paper produced in the U.S. uses 28 pounds of corn starch. Corn
starches, and their cousins dextrins (a roasted starch), are used in hundreds of
adhesive applications. Special types of starches are used in oil exploration as
part of the "drilling mud" which cools down super heated oil drilling bits.
Starches are used as flocculating agents, anti-caking agents, mold-release
agents, dusting powder and thickening agents. Literally thousands of supermarket
staples are produced using both regular and specially modified starches.
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<PAGE>
Many of today's instant and ready-to-eat foods are produced using starches which
enable them to maintain the proper textural characteristics during freezing,
thawing and heating. Starches are converted to sugar by breweries and used as
the feedstock in beer production. Other starches are important ingredients for
instant pie and pudding fillings which require little or no cooking compared to
traditional formulations. The most promising new market for corn starches is as
a raw material for the production of industrial chemicals and plastics which are
today made from petroleum feedstocks. The Cooperative manufactures and sells
unmodified and slightly-modified corn starches, with the majority of sales going
into the corrugated, paper, brewing and food industries.
FEEDS PRODUCTS AND GERM
The Cooperative produces three major feed products: gluten meal, gluten
feed and condensed fermented corn extractives (steepwater). Corn gluten meal
supplies vitamins, minerals, and energy in poultry feeds while pet food
processors value it for its high digestibility and low residue. Steepwater is a
liquid protein supplement for cattle and is also used as a binder in feed
pellets. The Cooperative also produces germ which is sold to edible oils
manufacturers for further processing into corn oil and gluten feed.
PRODUCT QUALITY
The Cooperative believes that its ability to produce high quality products
is a key competitive advantage over other industry participants. The American
Institute of Baking ("AIB") annually inspects each production facility in the
industry and numerically rates the plants so that industry users of corn
products can measure and compare the quality of facilities. In 1998, each of the
Cooperative's plants earned a "Superior" rating for its overall food safety
levels, placing each among the top 5% within the food processing industry. In
addition, customers have acknowledged the Cooperative's superior quality through
presentation of several quality awards.
SALES AND DISTRIBUTION
The Cooperative's products are sold directly by a staff of sales personnel
located regionally across the United States. The Cooperative also employs third
party resellers, primarily in the eastern and midwestern portions of the United
States. The Cooperative owns and operates an extensive distribution network
which is located primarily west of the Mississippi River, providing the
Cooperative with cost and service advantages in this strategic geographic
region. The Cooperative's combined sales and distribution network allows it to
effectively distribute its products to most areas of the United States by either
rail or truck.
The Cooperative supplies a broad range of customers throughout the U.S.
Sales of germ to Cargill accounted for approximately 12.5% of MCP's sales
revenues through the first seven months of fiscal year 1999 (April 1, 1998
through October 31, 1998). No other customer accounted for 10% or more of MCP's
total net sales for that period.
The majority of the Cooperative's corn sweetener and starch sales are made
on an annual basis, under contracts fixed as to price and volume. The
Cooperative sells its germ and steepwater on a contract basis. Gluten meal is
sold on both a contract basis and on the spot market. Feed product prices
typically reflect the general price of other comparable feedstuffs, such as
soybean meal, soybean oil, other edible oils and similar products. Feed demand
is primarily driven by the domestic population of animals being raised for
slaughter and by export demand.
The realized sales price of ethanol is driven by gasoline demand, the price
of oxygenate alternatives such as MTBE (a petroleum-based fuel oxygenate
substitutable for ethanol) and overall oxygenate program requirements. The
majority of the Cooperative's ethanol sales are made on a spot basis. The
Cooperative's ability to produce ethanol provides an important mitigant against
the seasonality inherent in the HFCS industry. Since soft drinks are an
important user of HFCS, its production peaks in the spring and early summer
months in anticipation of the peak in soft drink demand. On the other hand,
ethanol demand peaks in the winter, when many cities institute their oxygenated
fuel programs mandated by the Federal Clean Air Act.
35
<PAGE>
The Cooperative has indoor rail car and truck loading capabilities at both
plants which minimize the negative effects of harsh weather and help to maintain
strict product quality standards. The Cooperative leases in excess of 2,000 rail
cars for terms of up to 15 years. In March 1996, the Cooperative acquired Liquid
Sugars, Inc. ("LSI"), a sweetener blending, storage and distribution operation
with headquarters in Emeryville, California, which serves various customers
located in the western United States and southwestern Canada. LSI has 16
regional storage and transfer stations which allow the Cooperative to
economically effect deliveries of products to many regions of the country.
In February 1997, the Cooperative obtained an option to acquire a 7.5%
minority interest in Natural Solutions Corp. (formerly known as Ice Ban America,
Inc.) in exchange for agreeing to supply steepwater to it. Natural Solutions has
developed the first noncorrosive, nontoxic, biodegradable roadway de-icing
agent. As part of the agreement, the Cooperative will assist in the on-going
research and development of the technology. The Cooperative also has the right
to name members to the board of directors of Natural Solutions. Stanley L.
Sitton, the Cooperative's Senior Vice President of Sales and Marketing, has been
designated to represent the Cooperative and serves as a director of Natural
Solutions. Natural Solutions is quoted on the OTC Bulletin Board under the
symbol "ICEB."
COMPETITION
The Cooperative faces intense competition from other corn processors,
including Archer Daniels Midland Company, Cargill, Inc., and A.E. Staley
Manufacturing Company. Most of the Cooperative's products compete with virtually
identical products and derivatives manufactured by other companies. Many of
these competitors are substantially larger and have greater financial resources
than the Cooperative. Competition is generally based on price, product quality
and customer service.
Several products of the Cooperative also compete with products made from
raw materials other than corn. High fructose corn syrup competes with cane and
beet sugar products. Ethanol competes with MTBE and other oxygenate
alternatives. Corn gluten meal competes with soybean meal. Fluctuations in
prices of these substitute products may affect the prices of and profits derived
from the Cooperative's products.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
As a producer of food items for human consumption and items for use in the
pharmaceutical industry, the Cooperative is subject to various federal, state
and local laws relating to the operation of its processing facilities, product
quality, purity and labeling. The failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including monetary fines.
The operations of the Cooperative also are subject to various federal,
state and local laws and regulations with respect to environmental matters,
including air and water quality and underground fuel storage tanks. The
Cooperative believes it is currently in substantial compliance with
environmental laws and regulations. Protection of the environment requires the
Cooperative to incur expenditures for equipment or processes.
PRODUCTION FACILITIES
The Cooperative owns two processing facilities. The facility in Marshall,
Minnesota has the capacity to grind approximately 56 million bushels of corn per
year and is a major supplier of corn syrup. The facility in Columbus, Nebraska
has the capacity to grind approximately 70 million bushels of corn per year and
is a major supplier of 55 HFCS. Each facility also produces starch, 42 HFCS and
ethanol.
During the past few years, the Cooperative has modernized and expanded its
facilities. During 1995 and 1996, the Cooperative spent approximately $320
million to:
* increase the corn syrup production capacity of the Minnesota facility;
* build a refinery capable of producing 42 HFCS at the Minnesota facility;
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<PAGE>
* increase the 42 HFCS production capacity of the Nebraska facility; and
* build a refinery capable of producing 55 HFCS at the Nebraska facility.
The Cooperative believes that the capital expansion program completed in
1996 will allow the Cooperative to operate highly efficient facilities for the
foreseeable future without incurring significant additional capital
expenditures.
LEGAL PROCEEDINGS
From time to time the Cooperative is subject to litigation incidental to
its business. The Cooperative is not currently a party to any material legal
proceedings.
EMPLOYEES
At December 31, 1998, the total number of full-time employees was 870.
Approximately 5% of these employees are covered by three collective bargaining
agreements, one expiring in March 1999, one expiring in February 2001 and one
expiring in April 2001.
37
<PAGE>
MANAGEMENT
DIRECTORS
Immediately after the conversion, the Board of Directors of the LLC will be
composed of the current members of the Board of Directors of the Cooperative.
The current directors of the Cooperative will continue to serve as directors of
the LLC for the same terms for which they would otherwise have served as
directors of the Cooperative. The Board will consist of twenty-four directors,
each of whom will represent one of eight districts. Each director will be
elected by members of the new company residing in the district represented by
the directors. The Board also will be divided into three classes for election
purposes. One class is elected at each annual meeting of members to serve for a
three-year term. The Operating Agreement requires that the incumbent Board of
Directors appoint a Districting Committee to review the boundaries of the
districts at least every three years. The committee will recommend any changes
in the district boundaries necessary or appropriate to maintain equitable
representation of the number of members in each district.
The table below sets forth certain information concerning the initial
directors of the LLC
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
- ------------------------------- ----- ---------- -------------
<S> <C> <C> <C>
Doug G. Finstrom .............. 45 I 2000
1060 160th Avenue SE
Kerkhoven, MN 56252
Carl M. Just .................. 69 I 1999
20491 -- 121 Street NW
Sunburg, MN 56289
Duane R. Adams ................ 59 I 2000
54676 MN Highway 7
Cosmos, MN 56228
Howard A. Dahlager ............ 50 II 2001
85380 180th Street
Sacred Heart, MN 56285
Ken Robinson .................. 54 II 1999
RR 2 Box 82
Bird Island, MN 55310
David J. Scheibel ............. 38 II 2000
37554 County Road 4
Bird Island, MN 55310
Jerry N. Jacoby ............... 53 III 2001
17557 County Highway 1
Springfield, MN 56087
Steve F. Lipetzky ............. 48 III 1999
P.O. Box 152
Springfield, MN 56087
John M. Zwach, Jr. ............ 51 III 2000
13705 205th Street
Walnut Grove, MN 56180
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
- ----------------------------- ----- ---------- -------------
<S> <C> <C> <C>
Roger E. Fjerkenstad ........ 65 IV 2000
RR 2 Box 145
Dawson, MN 56232
Donald M. Lindblad .......... 61 IV 1999
RR 1 Box 25B
Dawson, MN 56232
Daniel P. Dybsetter ......... 53 V 1999
RR 1 Box 92
Porter, MN 56280
John R. Jerzak .............. 46 V 2000
RR 1 Box 178
Ivanhoe, MN 56142
Dean J. Buesing ............. 45 V 2001
RR 1 Box 157
Granite Falls, MN 56241
Sandy A. Ludeman ............ 51 VI 2000
RR 2 Box 19
Tracy, MN 56175
John P. Hennen .............. 62 VI 1999
1986 330th Street
Ghent, MN 56239
John H. Nelson .............. 61 VII 1999
2034 170th Avenue
Garvin, MN 56132
James H. Gervais ............ 47 VII 2000
2090 171st Street
Currie, MN 56123
Ron F. Kirchner ............. 51 VII 2001
2696 71st Street
Avoca, MN 56114
Kenneth L. Regier ........... 65 VIII 2001
503 South O Road
Aurora, NE 68818
Larry W. Dowd ............... 53 VIII 1999
P.O. Box 129
Columbus, NE 68602
Andrew V. Jensen ............ 48 VIII 1999
1407 W. 16th Road
Aurora, NE 68818
Patrick L. Meuret ........... 42 VIII 2000
P.O. Box 146
Brunswick, NE 68720
Robert J. Bender ............ 45 VIII 2000
5266 Cherokee Avenue
Columbus, NE 68601
</TABLE>
DOUG FINSTROM. Mr. Finstrom has been a director of the Cooperative since
1989. Mr. Finstrom has been in the business of farming near Kerkhoven, MN for
the past 28 years. Mr. Finstrom is currently the President of Property
Management Services of Minnesota, Inc., involved in buying,
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<PAGE>
selling, and managing investment properties for 3 years and has also been for
the past 15 years, and currently is, the President for 15 years of Finco
Equipment, Inc., a company involved in managing assets (i.e. leasing equipment
and investing). In addition, Mr. Finstrom has been a member of Minnesota Farm
Bureau for 28 years.
CARL JUST. Mr. Just has been a director of the Cooperative since 1990. Mr.
Just has been in the business of farming corn and soybeans near Sunburg, MN for
35 years. Mr. Just has been for the past 8 years and is currently the Chairman
of the Board for Sunburg Corporation, a nonprofit organization. Mr. Just has
been the Chairman for 3 years of Aid Association for Lutherans -- Branch 5330.
Mr. Just has also been the Vice Chairman since 1994 of Farm Service Agency --
Kandiyohi County Office Committee. In addition, Mr. Just is a member of the
Minnesota Farmers Union.
DUANE ADAMS. Mr. Adams has been a director of the Cooperative since 1997.
Mr. Adams has been the President of Duane Adams Farms, Inc., producing corn and
soybeans, near Cosmos, MN for the past 15 years. In addition, Mr. Adams has
been a member of the Meeker County Corn Growers for the past 10 years and was a
director of that association for 6 years. Mr. Adams has also been the past
President of Cosmos Development Corporation.
HOWARD DAHLAGER. Mr. Dahlager has been a director of the Cooperative since
1988. Mr. Dahlager is co-owner and secretary-treasurer of JSF Inc., Johnson
Seed Farm near Sacred Heart, MN, since 1979. Mr. Dahlager has also been the
secretary-treasurer for the past 4 years of Sacred Heart Community Development
Company LLC. In addition, Mr. Dahlager is currently the secretary of M.C.I.A.
- -- Minnesota Crop Improvement Association. Mr. Dahlager is also a member of
Southern Minnesota Beet Coop, Minn Aqua Fisheries and Midwest Investor (Golden
Oval) Eggs.
KEN ROBINSON. Mr. Robinson has been a director of the Cooperative since
1990. Mr. Robinson has been in the business of farming in the Bird Island, MN
area since 1983.
DAVID SCHEIBEL. Mr. Scheibel has been a director of the Cooperative since
1988. Mr. Scheibel's experiences include being a partner of a 946 acre farming
operation from 1978 to 1994 near Bird Island, MN. The partnership raised corn,
soybeans, seed corn and other specialty crops, as well as feeding Holstein dairy
replacement heifers and finishing Holstein beef cattle. As a partner, his duties
included financial and cost accounting, as well as daily production
responsibilities. Mr. Scheibel has also been employed in the agriculture
equipment business since 1994. He is currently serving as senior parts man at
Kibble Equipment Service Center in Bird Island, MN. In addition, Mr. Scheibel is
currently a member and serving as a Trustee and has served in the past as
Financial Secretary and Grand Knight of the Knights of Colombus, Council #2000,
Bird Island, MN.
JERRY JACOBY. Mr. Jacoby has been a director of the Cooperative since 1986
and Board Chairman since 1992. Mr. Jacoby has been in the business of farming,
producing corn and soybeans, near Springfield, MN since 1974. Mr. Jacoby has
also been the Treasurer for Sundown Township for 12 years. In addition, Mr.
Jacoby has been a member of Minnesota Corn Growers for 8 years and is also a
member of the American Legion.
STEVE LIPETZKY. Mr. Lipetzky has been a director of the Cooperative since
1981. Mr. Lipetzky is the President of Stephen Trucking, Inc. of Springfield,
MN, a trucking company hauling F.O.B. corn to Minnesota Corn Processors, since
its inception in May 1998. Although MCP has done a significant amount of
business with Mr. Lipetzky's trucking company, that business has been on the
same terms as MCP's relationships with other trucking firms. In addition, Mr.
Lipetzky is currently working on the farm in partnership with his brothers. Mr.
Lipetzky is currently the Parish Council Chairman at St. Raphael's Catholic
Church in Springfield, MN.
JOHN ZWACH, JR. Mr. Zwach has been a director of the Cooperative since
1991. Mr. Zwach is totally involved in operations and management in the
business of farming, a corn and soybean operation in Redwood County, MN for 29
years. Mr. Zwach is also currently a member of the Knights of Columbus and has
been since 1968. In addition, Mr. Zwach is a member of the American Legion Post
in Milroy, MN and has been a member of the Milroy Lions club since the early
1970's.
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ROGER FJERKENSTAD. Mr. Fjerkenstad helped in the organization of the
Cooperative and has been a director since 1981. Mr. Fjerkenstad is a retired
farmer, producing corn, soybeans and hogs from 1957 to 1996 near Dawson, MN. Mr.
Fjerkenstad has been a director of the Farmers Electric Company, Dawson, MN for
10 years.
DONALD LINDBLAD. Mr. Lindblad has been a director of the Cooperative since
1990. Mr. Lindblad currently is involved in managing a family farm, producing
corn and soybeans, since 1956 near Dawson, MN. Mr. Lindblad has been a member of
the Farmers Coop Elevator, Dawson, MN for 32 years and a member of the Prairie
Grains Elevator, Clarkfield, MN for 16 years.
DANIEL DYBSETTER. Mr. Dybsetter has been a director of the Cooperative
since 1994 and is currently serving as Secretary. Mr. Dybsetter is in the
business of farming, producing corn, soybeans and hogs since 1970 near Porter,
MN. Mr. Dybsetter is also a member and owns shares in the South Dakota Soybean
Processors and Phenix Manufacturing. Mr. Dybsetter is also a member of the Corn
Growers Association, Soybean Growers Association and a member of various area
coops. Mr. Dybsetter was the past secretary for the Yellow Medicine Pork
Producers.
JOHN JERZAK. Mr. Jerzak has been a director of the Cooperative since 1985.
Mr. Jerzak is primarily engaged in the business of farming near Ivanhoe, MN
since 1975. Mr. Jerzak also has a seed business, dealing primarily in DeKalb
Seeds. In addition, Mr. Jerzak is Board Chairman of Hope Mutual Insurance
Company and a director of Divine Providence Hospital at Ivanhoe, MN.
DEAN BUESING. Mr. Buesing has been a director of the Cooperative since
1998. Mr. Buesing is the President of Buesing Farms, Inc., Granite Falls, MN, a
farming operation producing corn, soybeans and hogs for 25 years. Mr. Buesing
has also been the President for the past 4 years of Buesing, Buesing, Inc.,
Granite Falls, MN which is involved in the building of cornheads. In addition,
Mr. Buesing is an officer and serves as treasurer for the past 8 years of the
Yellow Medicine Soybean Growers Association. Mr. Buesing and Mr. Hennen are
first cousins.
SANDY LUDEMAN. Mr. Ludeman has been a director of the Cooperative since
1997 and is currently serving as Vice-Chairman. Mr. Ludeman has been a partner
in Sanmarbo Farms, Inc., a diversified grain and livestock farm near Tracy, MN,
since 1973. Mr. Ludeman has been on the board of the Minnesota Farm Bureau
Foundation for 4 years. In addition, Mr. Ludeman has been a member of Minnesota
Soybean Growers Association for 20 years, Minnesota Corn Growers Association
for 15 years and Minnesota Farm Bureau for 30 years. Mr. Ludeman was the
founding chairman of the United Soybean Board, past president of the American
Soybean Development Foundation, vice-chairman of the Institute of Agriculture,
Forestry, Home Economics and Advisory Council of the University of Minnesota
and past chairman of the Minnesota Soybean Research and Promotion Council.
JOHN P. (JACK) HENNEN. Mr. Hennen has been a director of the Cooperative
since 1997. Mr. Hennen has been in the business of farming in Lyon County, MN
since 1960. Mr. Hennen's farming operation is diversified, producing cattle,
hogs, corn and soybeans. The farming operation has expanded to include his 3
sons and their families. In addition, Mr. Hennen is currently a director and
has been vice-chairman of the Minnesota Beef Council for 2 years. Mr. Hennen
also is a member of Minnesota Corn Growers, National Corn Growers, Soybean
Growers and a member of various coops in the area.
JOHN NELSON. Mr. Nelson has been a director of the Cooperative since 1981.
Mr. Nelson is the owner-operator of a 930 acre farming business located in
Murray County for 40 years. Mr. Nelson is also involved in a farm drainage
business. In addition, Mr. Nelson served as state president in 1992 and is a
past state director for the Minnesota Corn Growers Association. Mr. Nelson is
also a member of the Minnesota Soybean Growers Association and has been on the
Murray County Planning and Zoning Board for 18 years, 10 of which he was
chairman.
JAMES GERVAIS. Mr. Gervais has been a director of the Cooperative since
1990. Mr. Gervais has been in the business of farming near Currie, MN for 27
years.
RON KIRCHNER. Mr. Kirchner has been a director of the Cooperative since
1998. Mr. Kirchner has been in the business of farming, producing soybeans and
custom feeding hogs near Fulda, MN. Mr. Kirchner has been a director for the
past 6 years on the Fulda, MN School Board. In addition, Mr. Kirchner has been
a member of the VFW for 30 years, the American Legion Club for 30 years,
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<PAGE>
the Corn Growers Association for 5 years and the Soybean Growers Association
for 2 years. Mr. Kirchner also volunteers at St. Gabriel in Fulda, MN as a
release time teacher.
KENNETH REGIER. Mr. Regier has been a director of the Cooperative since
1992. Mr. Regier is in the business of farming bear Aurora, NE, producing
irrigated corn, since 1955. Mr. Regier has been a board member of the Upper Big
Blue Natural Resource District since 1980. In addition, Mr. Regier has been a
member of the Nebraska Coop Council, Education Committee, since 1997. Mr.
Regier was past board chairman of the Aurora Coop Elevator Company.
LARRY DOWD. Mr. Dowd has been a director of the Cooperative since 1992.
Mr. Dowd is President of Dowd Grain, O'Neill Farms, and Dowd Oil Co, all of
which are principally farming operations located in Holt County, Nebraska,
producing row crops, cow-calf operations, farrow to finish hog operations. Mr.
Dowd also serves as a director of First State Bank of Hickman, and has a
partnership interest in a swine breeding stock company. In addition, Mr. Dowd
has been a member of the Nebraska Corn Growers Association for 10 years.
ANDREW JENSEN. Mr. Jensen has been a director of the Cooperative since
1997. Mr. Jensen has been in the business of farming and livestock production
near Aurora, NE since 1970. Mr. Jensen is currently the President of Jensen
Farms, Inc. and a partner in Jensen Brothers. Mr. Jensen has been a state
director of the Nebraska Corn Growers Association since 1986 and was the past
State President from 1990 to 1992. In addition, Mr. Jensen has been the
Chairman of Government Affairs since 1992, a member of the Nebraska Cattlemen
since 1970, a member of the National Corn Growers Association since 1982, a
state director of the Nebraska Agriculture Awareness Foundation since 1996 and
a national director of the National Corn Growers Association since 1992.
PATRICK L. MEURET. Mr. Meuret has been a director of the Cooperative since
1997. Mr. Meuret has been the manager of J.E. Meuret Grain Co. Inc., Brunswick,
NE for 22 years. Mr. Meuret is currently Chairman of the Board, Village Board
of Trustees' -- Village of Brunswick, of which he has been a board member for 8
years. In addition, Mr. Meuret is currently President of Plainview Board of
Education and has been a board member for 8 years. Mr. Meuret is a past
director of Nebraska Grain and Feed and the Nebraska Turkey Growers
Association.
ROBERT BENDER. Mr. Bender has been a director of the Cooperative since
1992. Mr. Bender is the owner-operator of Bender Farms, a grain and livestock
operation, near Colombus, NE since 1977. Mr. Bender has also been a the
President of Bender Farms Trucking Inc., since 1992 and is a partner-manager of
CSS Farms. In addition, Mr. Bender is currently a partner and has been the
secretary for Klub 81 Inc. since 1980.
COMMITTEES OF THE BOARD
Following the conversion, the Board will have the following committees:
Executive, Finance, Corn Procurement, Grower Relations, Public Relations,
Compensation and Long Range Planning.
EXECUTIVE. The Executive Committee exercises the authority of the Board of
Directors when the Board is not in session, as permitted by law and the
Operating Agreement. Members: Howard Dahlager, Larry Dowd, Dan Dybsetter, Doug
Finstrom, Roger Fjerkenstad, Jim Gervais, Jerry Jacoby, Sandy Ludeman and John
Zwack, Jr.
FINANCE. The Finance Committee reviews the financial structure, policies
and future of the Cooperative as developed by senior management. It also
approves audit reports, accounting policies, financial statements and internal
controls. Members: Dean Buesing, Howard Dahlager, Larry Dowd, Doug Finstrom,
Roger Fjerkenstad, Jerry Jacoby, Ron Kirchner and Sandy Ludeman.
CORN PROCUREMENT. The Corn Procurement Committee establishes the
Cooperative's strategic corn procurement activities. Members: Duane Adams,
Larry Dowd, Jim Gervais, Jack Hennen, John Jerzak, Donald Lindblad, Steve
Lipetzky and David Scheibel.
GROWER RELATIONS. The Grower Relations Committee has historically
coordinated the Cooperative's interaction with the growers who have provided
the Cooperative's corn. Members: Duane Adams, Daniel Dybsetter, Roger
Fjerkenstad, Andrew Jensen, Steve Lipetzky, John Nelson, Kenneth Regier and Ken
Robinson.
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<PAGE>
PUBLIC RELATIONS. The Pubic Relations Committee assists management in
directing the Cooperative's public relations activities. Members: Robert
Bender, Daniel Dybsetter, Andrew Jensen, Carl Just, Jack Hennen, Ron Kirchner,
Ken Robinson and John Zwach, Jr.
COMPENSATION. The Compensation Committee reviews management compensation
practices and employee benefit plans. Members: Robert Bender, Howard Dahlager,
Jerry Jacoby, John Jerzak, Carl Just, Donald Lindblad, Patrick Meuret and John
Nelson.
LONG RANGE PLANNING. The Long Range Planning Committee considers and
analyzes the Cooperative's long-term strategic and market positions. Members:
Dean Buesing, Doug Finstrom, Jim Gervais, Sandy Ludeman, Patrick Neuret,
Kenneth Regier, David Scheibel and John Zwach, Jr.
COMPENSATION OF DIRECTORS
The LLC will reimburse each director for actual expenses of attending Board
and committee meetings and provide a per diem payment for services performed on
behalf of the LLC in the amount $250 for the Board Chairman, $150 for the Vice
Chairman and Secretary, and $100 for other directors. The Operating Agreement
provides that additional director compensation must be approved by Class A
members. The Cooperative currently reimburses each director for actual expenses
and also provides a per diem payment for services performed.
EXECUTIVE OFFICERS
Upon completion of the conversion, the following individuals will be
executive officers of the LLC:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----- -------------------------------------------------------------
<S> <C> <C>
L. Daniel Thompson ................ 57 President and Chief Executive Officer
Daniel H. Stacken ................. 35 Vice President and Chief Financial Officer
George A. Lamberth ................ 50 Chief Operating Officer of the Cooperative and
President and Chief Executive Officer of Liquid Sugars, Inc.
Lawrence J. Schiavo, Jr. .......... 40 Vice President of Operations and Business Development
Stanley L. Sitton ................. 41 Senior Vice President of Sales and Marketing
Roger L. Untiedt .................. 40 Vice President of Technology
Roger F. Evert .................... 37 Vice President of Human Resources and Administration
</TABLE>
L. DANIEL THOMPSON. Mr. Thompson has served as President and Chief
Executive Officer of the Cooperative since August 1997. Mr. Thompson served as
Chief Financial Officer from January 1997 to August 1997. From December 1994 to
January 1997, he served as President and Chief Executive Officer of Bake Rite
Foods, a shortening and vegetable oil manufacturer. Before that, Mr. Thompson
was President and Chief Executive Officer of Lou Ana Foods, Inc., a vegetable
oil refinery. Mr. Thompson is also a director of Liquid Sugars, Inc.
DANIEL H. STACKEN. Mr. Stacken has served as Vice President and Chief
Financial Officer of the Cooperative since November 1998. Mr. Stacken served as
Controller from December 1991 to November 1998. He is a director of Liquid
Sugars, Inc.
GEORGE A. LAMBERTH. Mr. Lamberth has served as Chief Operating Officer of
the Cooperative and President and Chief Executive Officer of Liquid Sugars,
Inc., a wholly-owned subsidiary of the Cooperative, since November 1997. Mr.
Lamberth is also a director of Liquid Sugars, Inc. Before joining the
Cooperative, Mr. Lamberth was Chief Executive Officer of GST Group, L.L.C. From
1995 to 1996, he was President of KRK Thermal Systems, a start-up food vending
machine manufacturer. Before that, he was Interim Chief Executive Officer of
Valley Care Health Systems, a 168-bed, two campus hospital complex. From 1987
to 1994, Mr. Lamberth was Chairman and Chief Executive Officer of Spreckels
Industries, Inc., a sweetener company.
LAWRENCE J. SCHIAVO, JR. Mr. Schiavo has served as Vice President of
Operations and Business Development of the Cooperative since November 1998. Mr.
Schiavo served as Director of Operations from October 1992 to November 1998 and
as Plant Manager of the Marshall facility from June 1990 to October 1992.
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<PAGE>
STANLEY L. SITTON. Mr. Sitton was named Senior Vice President of Sales and
Marketing in November 1998 and has been Vice President of Sales and Marketing
of the Cooperative since March 1997. Mr. Sitton also is a director of Liquid
Sugars, Inc. and of Natural Solutions, Inc. From December 1985 to February
1997, Mr. Sitton served in various positions with A.E. Staley Manufacturing
Company focusing on sales and marketing.
ROGER L. UNTIEDT. Mr. Untiedt was named Vice President and Director of
Technology in November 1998 and from February, 1996 and November, 1998 served
as Director of Quality and Engineering of the Cooperative. From November 1992
to February 1996, he served as Plant Manager of the Marshall facility.
ROGER F. EVERT. Mr. Evert was named Vice President of Human Resources and
Administration in November 1998. From October 1992 to November 1998, Mr. Evert
was Human Resources Manager.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Cooperative for the
Chief Executive Officer and the five next highest paid executive officers at the
end of fiscal year 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ --------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- -------------------------------- -------- ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
L. Daniel Thompson 1998 $231,450 $ -- $11,880 --
President and Chief Executive
Officer
Daniel H. Stacken 1998 110,057 6,000 -- --
Vice President and Chief
Financial Officer
George A. Lamberth(2) 1998 68,213 -- 13,200 --
Chief Operating Officer of the
Cooperative; President and
Chief Executive Officer of
Liquid Sugars, Inc.
Lawrence J. Schiavo 1998 125,225 6,000 -- --
Vice President of Operations
and Business Development
Stanley L. Sitton 1998 150,000 4,000 13,345 --
Senior Vice President of Sales
and Marketing
Roger L. Untiedt 1998 125,075 6,000 --- --
Vice President and Director of
Technology
</TABLE>
- ------------------
(1) Includes reimbursements for moving and relocation expenses and premiums paid
in connection with life insurance and retirement policies.
(2) Mr. Lamberth joined the Cooperative in November 1997.
EMPLOYEE BENEFIT PLANS
In 1998, the Cooperative adopted a Retirement Savings and Investment Plan
("401(k) Plan") covering the Cooperative's full-time employees. The 401(k) Plan
is intended to qualify under Section 401(k) of the Code, so that contributions
to the 401(k) Plan by employees or by the Cooperative, and
44
<PAGE>
the investment earnings thereon, are not taxable to employees until withdrawn
from the 401(k) Plan. The Cooperative matches a maximum of 1.5% of each
employee's earnings, but on the basis of 25% of the employee's contribution, up
to a maximum of 6%. Cooperative contributions vest 20% per year of service.
The Cooperative also maintains for all of its full-time employees health
and medical insurance, dental insurance, short-term and long-term disability and
term life insurance.
MANAGEMENT STOCK PURCHASE PROGRAM
The management stock purchase program provides management with an
opportunity to purchase nonvoting units of equity participation. The Board
selects the participants who will be granted rights to purchase nonvoting units
of equity participation and determines the number of nonvoting units covered by
the right. The purchase price is equal to 75% of the average selling price of
units of equity participation during the preceding 12 months. The purchase price
is payable in full at the time of exercise of the right or, in the discretion of
the Board, through accumulated cash dividend payments over an unspecified period
of time. If the payment is funded by cash dividends, the Cooperative has no
recourse against the participant for the full amount of the purchase price. The
rights are not transferable without the written consent of the Cooperative and
may be exercised immediately after the date of grant for a period of one year.
The nonvoting units acquired upon the exercise of a right are subject to
redemption by the Cooperative upon termination of the participant's employment.
However, if the participant's employment is terminated for reasons other than
for cause, the participant may sell his or her nonvoting units to a qualified
third party, within 3 months following termination of the participant's
employment. In fiscal 1998, the right to purchase 10,000 units were granted to
each of Mr. Thompson and Mr. Sitton at an average per unit price of $2.08.
As of December 31, 1998, the total number of nonvoting units of equity
participation held by the executive officers named in the Summary Compensation
Table, and the balance owed on these units were as follows: Mr. Thompson --
10,000 units ($20,767.50), Mr. Stacken -- 21,288 units ($27,879.95), Mr. Schiavo
- -- 28,384 units ($10,258.21), Mr. Sitton -- 10,000 units ($20,767.50) and Mr.
Untiedt -- 21,288 units ($27,886.84). The units held by Messrs. Stacken and
Untiedt are subject to loss payables that were assessed against all members in
fiscal 1996. The Board does not intend to grant any rights under the management
stock purchase program in the future.
EMPLOYMENT AGREEMENTS
The Cooperative has an employment agreement with Mr. Thompson, its
President and Chief Executive Officer. Under the agreement, Mr. Thompson's
initial annual salary is $250,000. Mr. Thompson also is eligible for an annual
bonus based on a fixed percentage of net income for such fiscal year. The
agreement provides for discretionary annual bonuses to Mr. Thompson for any
fiscal year in which the Cooperative is unprofitable. In addition, Mr. Thompson
is entitled to participate in the Management Stock Purchase Program and
receives a $20,000 annuity annually.
The initial term of the agreement expires on March 31, 2001, subject to
automatic renewal terms of one year each, unless terminated earlier. If the
Board terminates the employment agreement with Mr. Thompson without cause (as
defined), Mr. Thompson will receive a cash severance payment equal to:
* if the employment ends during the initial term, the greater of $250,000
or the product of $4,807.69 times the number of weeks remaining from the
date of termination to the end of the initial term, or
* if the employment ends after the initial term, $250,000.
In addition, the Cooperative will compensate Mr. Thompson for any financial
loss suffered on the sale of his residence in the Marshall area.
In November 1997, the Cooperative entered into an employment agreement
with Mr. Lamberth. The agreement provides for an initial annual salary of
$175,000. Under the agreement, Mr. Lamberth
45
<PAGE>
is eligible for discretionary annual bonuses and entitled to participate in the
Management Stock Purchase Program. In addition, the agreement provides for
reimbursement of approximately $13,000 in annual premiums for an existing
universal benefit policy. The agreement will expire on later of (1) December 31,
1999, unless earlier terminated or (2) such later date that is agreed upon by
the Cooperative and Mr. Lamberth. If the Board terminates the employment
agreement with Mr. Lambeth without cause (as defined), Mr. Lamberth will receive
a cash severance payment equal to his weekly compensation rate multiplied by the
number of weeks remaining in his term of employment.
SECURITY OWNERSHIP OF MANAGEMENT
The Operating Agreement provides that each Class A member owning 5,000 or
more Class A units will have one vote and that no Class A member may own more
than 2% of the total issued and outstanding Class A units. If the conversion had
been completed on December 31, 1998, officers and directors would beneficially
own as a group approximately ___% of the outstanding Class A units.
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<PAGE>
DESCRIPTION OF MEMBERSHIP UNITS
THE FOLLOWING SUMMARY OF THE MATERIAL FEATURES OF THE LLC MEMBERSHIP UNITS
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE
TO THE OPERATING AGREEMENT OF THE LLC.
GENERAL
The LLC has two classes of membership: Class A membership, which has voting
rights, and Class B membership, which has no voting rights. Membership is not
limited to agricultural producers. Class A memberships are represented by Class
A units. A Class A Unit is the holder's share of the profits and losses of the
LLC and the holder's right to receive distributions of cash or assets. Class B
memberships are represented by Class B units, which also represent the right to
share in the profits and losses and distributions of the LLC. The LLC is
authorized to issue 350,000,000 Class A units and 150,000,000 Class B units.
The Operating Agreement authorizes the LLC to issue additional units for
the purpose of (1) funding costs of expansion of, or maintenance and repairs to,
its corn wet milling facilities and related facilities, (2) funding costs of
construction or acquisition of facilities or any related or complementary
business, (3) funding losses which cannot be reasonably expected to be funded
with future earnings or (4) funding equity contributions to joint ventures
related or complementary to the LLC's existing business. If the LLC issues
additional units in the future, members will have the right to subscribe for
additional units in order to permit members to maintain their percentage of
units owned at a constant level.
QUALIFICATIONS FOR MEMBERSHIP
CLASS A MEMBERSHIP
A Class A membership is available to any individual, corporation or other
entity who acquires a minimum of 1,000 Class A units. The initial Class A
members of the LLC will be members of Minnesota Corn Processors, Inc. who
receive Class A units upon completion of the conversion. Competitors of the LLC
are not eligible to purchase or own Class A units. At the time of the
conversion, competitors would include Archer Daniels Midland Company, Cargill,
Inc., Corn Products Company and A.E. Staley Manufacturing Company, Cerestar USA,
Inc., National Starch and Chemical Company, Penford Products Company, Roquette
America, Inc., and any officers or directors of those companies.
CLASS B MEMBERSHIP
A Class B membership is available to any individual, corporation or other
entity who acquires a minimum of 1,000 Class B units. Upon completion of the
conversion, the initial Class B member will be Archer Daniels Midland Company.
CLASS A UNITS
VOTING RIGHTS
Although Class A members are required to own a minimum of 1,000 Class A
units, only members holding 5,000 or more Class A units are entitled to vote.
Holders of 5,000 or more Class A units are entitled to one vote on all matters
to be voted upon by the members. The LLC has the right to purchase the Class A
units of any member owning less than 1,000 Class A units at the Established
Value (as defined below), following written notice of the deficiency to the
member and expiration of a one-year cure period within which the member can buy
additional Class A units. Any member owning at least 1,000 Class A units, but
less than 5,000 units, is not entitled to vote. Class A units held by any member
not entitled to vote will be excluded in determining the total number of Class A
units required for action to be taken by the members.
MAXIMUM OWNERSHIP LIMITATION
No member can own more than 2% of the total issued and outstanding Class A
units. For purposes of calculating the 2% limitation, the number of Class A
units owned by a member includes any Class A units owned by that member's
spouse, children, parents, brothers and sisters, and any
47
<PAGE>
Class A units owned by any corporation, partnership or other entity in which the
member or the member's family members owns or controls a majority of the voting
power. Any Class A member owning more than 2% of the outstanding Class A units
is not entitled to vote until the member disposes of the excess Class A units.
In addition, the LLC has the right to purchase the number of Class A units in
excess of the 2% limitation at the Established Value, following written notice
of the excess ownership to the member and expiration of a one-year cure period
within which the member can dispose of the excess Class A units. Under the
Operating Agreement, the "Established Value" means the per unit purchase price
set by the Board of Directors based on 75% the fair market value of the Class A
units (as determined by the Board using reasonable valuation methods) or the
book value of the Class A units, whichever is less. At the option of the LLC,
the purchase price may be made in one lump sum or in equal installments over a
five-year period, with interest.
CLASS B UNITS
Class B units are nonvoting membership interests. However, the LLC may not
(1) materially change its principal business, (2) sell, lease or otherwise
transfer substantially all of its assets or (3) incur capital expenditures in
excess of $250,000 without the prior consent of the holders of 66.67% of the
Class B units. The LLC has the right to purchase the Class B units of any member
owning less than 1,000 Class B units at the Established Value, following written
notice and expiration of the one-year cure period. There is no maximum limit on
the ownership of Class B units. Holders of Class B units are also entitled to
receive distributions of cash as may be declared by the Board of Directors, on
the same basis as holders of Class A Units.
DISTRIBUTIONS
Unit holders are entitled to receive distributions of cash as may be
declared by the Board of Directors. Distributions of cash will be made to unit
holders in proportion to the number of Units owned by each member. The holders
of Class A units and Class B units are entitled to equivalent per Unit
distributions. The Board of Directors has the discretion to make distributions
to holders of Special Financial Interests in the aggregate amount of the stated
amount of such Interests.
CAPITAL ACCOUNTS AND CONTRIBUTIONS
The purchase price for Class A units and Class B units will constitute a
capital contribution to the LLC for purposes of becoming a member of the LLC.
The Operating Agreement does not require any member to make additional capital
contributions to the company, except that the Board of Directors may require any
member who owes a tax withholding obligation to the company to reimburse the
company for that liability. Except as otherwise provided in the Operating
Agreement, interest will not accrue on capital contributions, and members will
have no right to withdraw or be repaid any capital contribution.
ALLOCATION OF PROFITS AND LOSSES; SPECIAL ALLOCATION RULES
ALLOCATION OF PROFITS AND LOSSES
Except as otherwise provided in Special Allocations, profits and losses
realized by the LLC will be allocated to the members in proportion to the number
of units held by each member. Profits and losses will be determined by the Board
of Directors on either a daily, monthly, or other basis permitted under the Code
and corresponding Treasury Regulations.
SPECIAL ALLOCATION RULES
The general rule for profit and loss allocations is subject to a number of
exceptions referred to as special allocations. The most relevant of the special
allocations is the special allocation of profits that will be made if
distributions are made to the holders of Special Financial Interests. The other
special allocations are required by Treasury Regulations and are aimed at highly
leveraged partnerships that allocate taxable losses in excess of the partner's
actual capital contributions. These circumstances are highly unlikely to occur
in the LLC.
RESTRICTIONS ON TRANSFER OF UNITS
Transferability of units is restricted to ensure that the LLC is not deemed
a "publicly traded partnership" and thus taxed as a corporation. See "Federal
Income Tax Considerations -- Publicly Traded Partnership Rules." Under the
Operating Agreement, no transfers may occur without the
48
<PAGE>
approval of the Board of Directors. The Board of Directors will permit transfers
that fall within "safe harbors" contained in the publicly traded partnership
rules under the Code. These include transfers by gift, transfers upon the death
of a member, intra family transfers and other transfers during the tax year that
in the aggregate do not exceed 2% of the total outstanding Class A and Class B
units. In addition, the Board may give nontransferring members a right of first
refusal with respect to certain transfers of units. In the future, the LLC may
consider establishing a qualified matching service to facilitate trading in the
Class A units. If anyone transfers units in violation of the publicly traded
partnership requirements of the Code or without the prior consent of the Board,
the LLC will consider the purported transfer to be null and void and will not
recognize any voting and distribution rights for those units.
The Board of Directors may, in its discretion, establish other conditions
and procedures for transfers of units. These may include (1) delivery of a legal
opinion to the Cooperative; (2) delivery of transfer instruments to the
Cooperative; (3) delivery of certain financial information sufficient to enable
to Cooperative to file all necessary tax returns; and (4) repayment of any
indebtedness owed by the transferring member to the LLC.
In addition, the Board may require a transferee of Class B units to enter
into a written agreement with the Cooperative to the effect that the transferee
is not entitled to the benefits of the Stockholder Agreement between the
Cooperative, as successor in interest to the Cooperative, and Archer Daniels
Midland Company. All transfers of Class B units also must be approved by the
Board of Directors.
The pledge of, or granting of a security interest in, lien or other
encumbrance in or against a member's units does not constitute a transfer of the
units. A transfer of units as a result of foreclosure or transfer in lieu of
foreclosure does constitute a transfer of units, and is subject to the
restrictions on transfers of units. The transfer of all of a member's units to a
transferee terminates the transferring member's membership in the Cooperative.
DISTRIBUTION OF ASSETS UPON LIQUIDATION
The Cooperative's Operating Agreement establishes the following order and
priority for distribution of the Cooperative's assets upon dissolution, each
category to be satisfied in full before any distribution is made to the next:
first, all debts and liabilities of the Cooperative must be paid; second,
reserves for contingent liabilities must be set aside; third, the value of Class
A and Class B units, as determined by the Board of Directors must be paid pro
rata to the unit holders; fourth, the stated amount of Special Financial
Interests, reduced by previous distributions with respect to such Interests,
must be paid; and fifth, all remaining property and assets of the Cooperative
are then to be distributed among the unit holders pro rata in amount equal to
the unit holders' respective capital accounts.
AMENDMENTS TO OPERATING AGREEMENT
The Operating Agreement may be amended by the vote of 66.67% of the members
voting, either in person or, if authorized by the Board, by proxy or mail
ballot, at any regular or special meeting of the members at which a quorum is
present. In the case of any amendment which modifies the rights and benefits
afforded to holders of Class B units, the consent of 66.67% of the holders of
Class B units is required.
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<PAGE>
COMPARISON OF CERTAIN RIGHTS OF MEMBERS
The rights of members are currently governed by Minnesota Cooperative Law
("Minnesota Law") and the Articles of Incorporation and Bylaws of the
Cooperative. Upon completion of the conversion, the rights of members will be
governed by the Colorado Act and the Operating Agreement of the LLC. The
following is a summary of the material differences between ownership of the
Cooperative units and ownership of the LLC Class A units. This summary is not
intended to be a complete discussion of, and is qualified in its entirety by
reference to the Minnesota Act, the Colorado Act, the Cooperative Articles, the
Cooperative Bylaws and the Operating Agreement. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist. A copy of the Operating Agreement is attached as
Appendix D to this document. The Articles of Incorporation and Bylaws of the
Cooperative may be obtained from the Cooperative, without charge, by contacting
Dan Stacken, Minnesota Corn Processors, Inc., 901 North Highway 59, Marshall, MN
56258.
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
TAXATION The LLC will be treated as a The Cooperative is exempt from
partnership for federal income tax taxation at the company level under
purposes. The LLC will pay no tax Subchapter T of the Code so long as
on its net income. Rather, each it distributes at least 20% of
member is subject to income tax patronage distributions to its
based on the member's allocable members in cash. Each member is
share of income, gain, loss, deduction subject to income tax based on the
and credits, whether or not any cash amount of patronage and dividends
is actually distributed to the member. distributed to the member.
LIMITED LIABILITY Under the Colorado Act and the Members are not personally liable
Operating Agreement, members will for the debts, obligations and
not be personally liable for the debts, liabilities of the Cooperative, but are
obligations and liabilities of the LLC. obligated to deliver corn under their
marketing agreements.
DISTRIBUTIONS; Subject to any legal or contractual The Cooperative is required to
CORN DELIVERY restrictions, the Board of Directors distribute its annual net income to
OBLIGATION of the LLC has the discretion members based on patronage.
whether and when to make cash Patronage distributions may be paid
distributions to the members and to in the form of cash, stock, units of
fix the amount of any distribution. equity participation, certificates of
Holders of Class A units and Class B interest, revolving fund certificates,
units are entitled to equivalent per notes or credits. The Cooperative
unit distributions. The Board also has may (and may be required to loan
the discretion to make distributions agreements to) retain a portion of its
to the holders of Special Financial annual income for working capital
Interests up to the stated amount purposes. Members are obligated to
thereof. Members have no obligation deliver roughly one bushel of corn
to deliver corn to the LLC and for each unit of equity participation
distributions are based on the they own.
number of units held by a member.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
AUTHORIZED The Operating Agreement provides The Cooperative Articles provide for
CAPITAL for authorized capital consisting of authorized stock consisting of
350 million Class A units and 150 100,000 shares of common stock,
million Class B units. $50.00 par value per share, 100,000
shares of nonvoting preferred
stock, $50.00 par value per share
and non-voting units of equity
participation equal to 30% of the
Cooperative's total participating
equity.
MEMBERSHIP Under the Operating Agreement, The Cooperative Articles provide
INTERESTS Class A units represent voting that common stock is the only class
membership interests and Class B of membership and voting stock.
units represent nonvoting Common stock may be held only by
membership interests. Class A units agricultural producers. Each unit of
may be held by any person that is equity participation represents the
not a competitor of the LLC (i.e., right and obligation to deliver corn.
ownership of Class A units is not The Cooperative is a closed-end
limited to agricultural producers). No cooperative, which means that new
person may own less than 1,000 members may be admitted by
Class A units or more than 2% of purchasing shares from existing
the issued and outstanding Class A members, or from the company if the
units. company expands its corn processing
capacity.
LIQUIDITY AND There is no public trading market for There is no public trading market for
TRANSFERABILITY the Class A units. The Operating the Cooperative common stock and
Agreement imposes certain transfer units of equity participation. No
restrictions to preserve the LLC's transfer may occur without the prior
partnership tax status. No transfer consent of the Board, and the
may occur without the prior consent common stock may be held only by
of the Board. Ownership of Class A qualified agricultural producers.
units is not limited to agricultural Members have a right-of-first-refusal
producers. The Board has the with respect to certain transfers of
discretion to give members a stock.
right-of-first-refusal with respect to
certain transfers of Units.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
VOTING RIGHTS Under the Operating Agreement, Under the Cooperative Articles, each
each member owning a minimum of member owning a minimum of 5
5,000 Class A units is entitled to one common shares is entitled to one
vote, regardless of the number of vote, regardless of the number of
units owned. Members owning less shares or units of equity participation
than 5,000 Class A units have no owned.
voting rights; members owning more
than 2% of the outstanding Class A The Cooperative Bylaws prohibit
units will not be entitled to voting voting by proxy.
rights until they reduce their
ownership to no more than 2% of the
outstanding Class A units. Members
who are competitors don't have voting
rights.
The Operating Agreement permits
voting by mail ballot and proxy if
authorized by the Board.
TERMINATION OF Under the Operating Agreement, a The Cooperative Bylaws provide that
MEMBERSHIP member's membership interest will the Board of Directors, in its sole
terminate upon (1) a complete discretion, may terminate the
transfer of all of the member's member's membership if the member (1)
units, (2) dissolution of a becomes ineligible for membership,
nonindividual member, (3) death of an (2) has failed to patronize the
individual member, (4) withdrawal or Cooperative for a period of 1 year or
(5) failing to meet the minimum or more, (3) has moved outside the
maximum requirements for unit territory served by the Cooperative,
ownership. (4) dies or ceases to be an
agricultural producer or (5)
intentionally or repeatedly violated
any provisions of the Article or
Bylaws breached any contract with the
Cooperative, remained indebted to the
Cooperative for 90 days after said
indebtedness first became payable or
willfully obstructed any lawful
purpose or activity of the
Cooperative.
REDEMPTION Class A units are subject to Under the Cooperative Articles, the
redemption if a members owns less common stock is subject to optional
than 1,000 Class A Units or more redemption by the Cooperative at
than 2% of the total outstanding the lesser of par value or book value.
Class A Units. The redemption price
is the lesser of book value or 75% of
the fair market value of the units.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
ANNUAL MEETINGS The Operating Agreement provides The Cooperative Bylaws provides
that regular meetings of the that the annual meeting of members
members shall be held at least once shall be held with six months
per year. The Operating Agreement following the close of the fiscal year.
gives any member the right to
demand a meeting of the members if
a regular meeting has not been held
within six months after the end of
the fiscal year.
VOTE ON The Operating Agreement states that Minnesota Law requires that a
EXTRAORDINARY a merger, consolidation, share or merger, consolidation, sale of all or
TRANSACTIONS interest exchange, sale of all or substantially all of the assets of the
substantially all of the assets of The Cooperative, or a dissolution of the
LLC, a dissolution of the LLC or Cooperative must be approved by
any transaction, agreement or action the affirmative vote of two-thirds of
on behalf of the LLC that is not the members voting in person or if
related or complimentary to the authorized, by mail ballot. The
Cooperative's existing business, must Cooperative Articles do not contain
be approved by the affirmative vote vote requirements for extraordinary
of two-thirds of the Class A transactions.
members voting in person, or if
authorized, by proxy or mail ballot.
AMENDMENT OF An amendment of the Operating An amendment of the Cooperative
GOVERNING Agreement requires approval of Articles and Bylaws requires
DOCUMENTS two-thirds of the Class A members approval by the members by the
voting in person, or if authorized, by affirmative vote of a majority of the
proxy or mail ballot. members present at the meeting.
PREEMPTIVE RIGHTS The Operating Agreement provides Neither Minnesota Law nor the
that holders of Class A units have Cooperative's Articles or Bylaws
preemptive rights. provide for preemptive rights.
APPRAISAL RIGHTS Neither the Colorado Act nor the Neither Minnesota Law nor the
OF DISSENTING Operating Agreement provides for Cooperative Articles or Bylaws
MEMBERS appraisal rights. provides for appraisal rights.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
LIQUIDATING RIGHTS In the event of a liquidation of the In the event of a liquidation of the
LLC, unit holders would be entitled Cooperative, the assets remaining
to share ratably in any assets offer the satisfaction of all debts and
remaining after satisfaction of liabilities of the Cooperative are
obligations to creditors and the distributed as follows: (1) to holders
establishment of reserves for of units of equity participation on a
contingent liabilities or obligations of pro rata basis; (2) to holder of other
the Cooperative as deemed necessary patronage equity interests on a pro
by the Board or the person rata basis; (3) to holders of common
conducting the liquidation, except stock and preferred stock an amount
that when unit holders have received equal to the par value of their
the value of their units as shares; and (4) remaining assets to
determined by the Board, the current and former patrons in
holders of Special Financial Interests accordance with their proportionate
will be entitled to payment of their patronage.
stated value as reduced by prior
distributions.
FINANCIAL The LLC will be subject to the The Cooperative is not subject to the
REPORTING reporting requirements of the reporting requirements of the
Exchange Act and will file annual, Exchange Act.
quarterly and special reports with the
SEC.
FIDUCIARY DUTIES The Colorado Act provides that a The Cooperative Articles limit the
director must perform his duties in personal liability of directors to the
good faith, in a manner he maximum extent permitted by
reasonably believes to be in the best Minnesota Law. Minnesota Law
interests of the limited liability provides that directors of a
company, and with such care as an cooperative will not be personally
ordinarily prudent person in a like liable for monetary damages for
position would use under similar breach of their fiduciary duties as
circumstances. A person who so directors, except liability for (1) any
performs his duties shall not have breach of their duty of loyalty to the
any liability for reason of being a cooperative or its members, (2) acts
director of the limited liability or omissions not in good faith or
company. which involve intentional misconduct
or a knowing violation of law or (3)
any transaction from which the
director derived an improper personal
benefit.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
INDEMNIFICATION OF The Operating Agreement requires The Cooperative Bylaws provides
OFFICERS AND the LLC, to the fullest extent that the Cooperative shall indemnify
DIRECTORS permitted by law, to indemnify each its directors, officers, managers,
director from and make advances for employees or agents to the fullest
expenses incurred by the director in extent permitted by Minnesota law.
connection with any claim made
against the director arising from an
action or omission made in good
faith or which he or she reasonably
believed to be in the best interests of
the Company or any other such
claim to the maximum extent
permitted under the Colorado Act,
except to the extent the claim results
from an act or omission constituting
fraud or willful misconduct. In
addition, except as otherwise
provided in an agreement with an
officer, the LLC is required to
indemnify officers to the fullest
extent permitted by law.
</TABLE>
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material federal income tax considerations
relating to the tax treatment of the LLC and its members is based on current
law, is for general purposes only, and is not tax advice. The summary is not
intended to represent a detailed description of the federal income tax
consequences applicable to a particular member in view of such member's
particular circumstances nor is it intended to represent a detailed description
of the federal income tax consequences applicable to certain investors subject
to special treatment under the federal income tax laws. The summary is based on
current provisions of the Code, current and proposed Treasury Regulations, court
decisions, and other administrative rulings and interpretations. All of these
sources are subject to change, and these changes may be applied retroactively.
We cannot provide any assurance that any such change, future provisions of the
Code or other legal authorities will not alter significantly the tax
considerations we describe in this summary.
EACH MEMBER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF THE UNITS AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX STATUS OF THE LLC
Single-tax treatment and the ability to make cash distributions to unit
holders without incurring an entity level federal income tax depends on the
treatment of the LLC as a partnership for income tax purposes. We expect that
the LLC will be treated as a partnership for federal income tax purposes. This
means that the LLC will pay no federal income tax and members will pay tax on
their share of the LLC's net income. Under recently revised Treasury Regulations
known as the "check-the-box" regulations, an unincorporated entity such as a
limited liability company will be taxed as a partnership unless the entity is
considered a publicly traded limited partnership or the entity affirmatively
elects to be taxed as a corporation.
The LLC will not elect to be taxed as a corporation and will endeavor to
take such steps as are feasible and advisable to avoid classification as a
publicly traded limited partnership. In early 1997, a study of partnership law
by the staff of the Congressional Joint Committee on Taxation questioned the
legal authority of the Treasury to issue the check-the-box regulations. Although
certain of the staff's recommendations were enacted into law, Congress has shown
no inclination to adopt legislation that would jeopardize the tax classification
of the many entities that have acted in reliance on the check-the-box
regulations.
If the LLC fails to qualify for partnership taxation for whatever reason,
it would be treated as a "C corporation" for federal income tax purposes. As a
"C corporation," it would be taxed on its taxable income at corporate rates
(currently a maximum 35% federal rate), distributions would generally be taxed
again to holders of Class A units as corporate dividends, and the holders of
Class A units would not be required to report their share of the LLC's income,
gains, losses or deductions on their tax returns. Because a tax would be imposed
upon the LLC as an entity, the cash available for distribution to unit holders
would be reduced by the amount of tax paid which could cause a reduction in the
value of the units.
PUBLICLY TRADED PARTNERSHIP RULES
To qualify for taxation as a partnership, the LLC cannot be subject to the
publicly traded partnership rules under the Section 7704 of the Code. Generally,
the Code provides that a publicly traded partnership ("PTP") will be taxed as a
corporation. The Code defines a PTP as a partnership whose interests are traded
on an established securities market, or are readily tradable on a secondary
market (or the substantial equivalent thereof). Although there is no legal
authority on whether a limited liability company is subject to the PTP rules, it
is probable that the LLC is subject to the PTP rules because it has elected to
be classified and taxed as a partnership.
The LLC will seek to avoid being treated as a PTP. Under Section
1.7704-1(d) of the Regulations, interests in a partnership are not considered
traded on an established securities market or readily tradable on a secondary
market unless (1) the partnership participates in the establishment
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of the market or the inclusion of its interests thereon, or (2) the partnership
recognizes any transfers made on the market by redeeming the transferor partner
or admitting the transferee as a partner. The LLC does not intend to list the
Class A and Class B units on any stock exchange or the NASDAQ Stock Market. In
addition, the Operating Agreement prohibits any transfer of units without the
approval of the Board. The Board intends to approve only transfers that fall
within certain safe harbor provisions of the Regulations and therefore will not
cause the LLC to be classified as a PTP. These safe harbor provisions generally
provide that interests will not be treated as readily tradable on a secondary
market (or the substantial equivalent thereof) if the interests are transferred:
* in "private" transfers;
* in qualified redemptions and repurchases;
* pursuant to a qualified matching service; or
* in limited amounts that satisfy a 2% test.
Private transfers include, among others: (1) transfers such as gifts in
which the transferee's tax basis is determined by reference to the transferor's
tax basis in the interests transferred, (2) transfers at death, including
transfers from an estate or testamentary trust, (3) transfers between members of
a family (as defined in Section 267(c)(4) of the Code), (4) transfers from
retirement plans qualified under Section 401(a) of the Code or an IRA, and (5)
"block" transfers. A block transfer is a transfer by a member and any related
persons (as defined in the Code) in one or more transactions during any
thirty-calendar-day period of interests representing in the aggregate more than
two percent of the total interests in partnership capital or profits.
Transfers pursuant to a qualified redemption or repurchase are disregarded
in determining whether interests are readily tradable on a secondary market if
several conditions are met. First, the redemption or repurchase cannot occur
until at least 60 days after the partnership receives written notice of the
member's intent to exercise the redemption or repurchase right. Second, either
the purchase price is not established until at least 60 days after receipt of
such notification or the purchase price is established not more than four times
during the entity's tax year. Third, the sum of the interests in capital or
profits transferred during the year (other than in private transfers) cannot
exceed 10 percent of the total interests in partnership capital or profits.
Transfers through a qualified matching service also are disregarded in
determining whether interests are readily tradable. A matching service is
qualified only if: (1) it consists of a computerized or printed system that
lists customers' bid and/or ask prices in order to match members who want to
sell with persons who want to buy, (2) matching occurs either by matching the
list of interested buyers with the list of interested sellers or through a bid
and ask process that allows interested buyers to bid on the listed interest, (3)
the seller cannot enter into a binding agreement to sell the interest until the
fifteenth calendar day after his interest is listed (which date must be
confirmable by maintenance of contemporaneous records), (4) the closing of a
sale effected through the matching service does not occur prior to the
forty-fifth calendar day after the interest is listed, (5) the matching service
displays only quotes that do not commit any person to buy or sell an interest at
the quoted price (nonfirm price quotes) or quotes that express an interest in
acquiring an interest without an accompanying price (nonbinding indications of
interest) and does not display quotes at which any person is committed to buy or
sell a interest at the quoted price (firm quotes), (6) the seller's information
is removed within 120 days of its listing and is not reentered into the system
for at least 60 days after its deletion, and (7) the sum of the percentage
interests transferred during the entity's tax year (excluding private transfers)
cannot exceed 10 percent of the total interests in partnership capital or
profits.
In addition, interests are not treated as readily tradable if the sum of
the percentage interests transferred during the entity's tax year (excluding
private transfers, qualified redemptions and qualified matching service
transfers) do not exceed two percent of the total interests in partnership
capital or profits.
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TREATMENT OF THE LLC'S OPERATIONS
FLOW-THROUGH OF TAXABLE INCOME; USE OF CALENDAR YEAR
No federal income tax will be paid by the LLC. Instead, each unit holder
will be required to report on his income tax return his allocable share of the
income, gains, losses and deductions of the LLC without regard to whether
corresponding cash distributions are received.
Because the LLC will be taxed as a partnership, it will have its own
taxable year separate from the taxable years of its unit holders. Unless a
business purpose can be established to support a different taxable year, a
partnership must use the "majority interest taxable year" which is the taxable
year that conforms to the taxable year of the holders of more than 50% of its
interests. In the LLC's case, the majority interest taxable year is the calendar
year.
Establishing a valid business purpose for a nonconforming taxable year is
difficult. The Service has ruled that, in determining whether a partnership has
established a sufficient business purpose to justify consent to use a
nonconforming taxable year, both tax factors and nontax factors must be
considered. Moreover, the ruling states that, where the use by a partnership of
a nonconforming year results in deferral or distortion of income, the nontax
factors must be "compelling." The examples in the ruling indicate that the
Service is not likely to view many nontax factors as compelling. Although the
LLC will consider applying for a nonconforming taxable year, unit holders should
assume that the LLC will be required to use the calendar year.
LLC'S BASIS IN ASSETS
Code Section 723 provides that the basis of any property contributed to a
partnership by a partner is the adjusted basis of the property in the hands of
the contributor at the time of the contribution. In general, this will be the
fair market value of the LLC units ($1.10 per unit) increased by the amount of
liabilities initially assumed by the LLC. The aggregate basis must be
apportioned among the categories of assets in proportion to their relative fair
market values and future cost recovery deductions will be based on the amounts
so apportioned. It is possible that the IRS will challenge the allocation of
basis to specific categories of assets within the LLC so as to increase the
allocation to longer-lived assets or assets that cannot be depreciated or
amortized such as land and Section 197 intangibles that were used by the
Cooperative during the Section 197 transition period of 1991 to 1993.
TAXABLE INCOME OR LOSS FROM OPERATIONS
The LLC will compute its taxable income or loss in a manner that differs
materially from the way the Cooperative determines its taxable income or loss.
Material changes include the fact that an LLC does not issue patronage dividends
or value added payments and therefore does not receive a deduction for such
payments. The net effect at the unit holder level is similar with respect to
taxable income, however, in that the bulk of the taxable income of the LLC will
be reported by the members. LLC losses, however, flow-through to the unit
holders, subject to restrictions discussed below, while a cooperative's losses
generally produce net operating loss carryovers.
The LLC may have material differences in taxable income or loss relative to
pre-conversion taxable income or loss because of changes in asset basis that is
attributable to the conversion. The LLC will have a lower basis in its accounts
receivable and inventory as the result of the valuation and discounts applied in
the conversion process. This is likely to result in a nonrecurring increase in
1999 LLC income in the approximate amount of the discount for lack of
marketability and minority interest that is apportioned to accounts receivable
and inventory currently estimated at $9 million. This will result in
nonrecurring taxable income of approximately 4.6 cents per unit in the year of
conversion. In addition, new cost recovery schedules will be adopted that will
be based on the discounted value of depreciable and amortizable assets as if
they are placed in service on the conversion date. We estimate that our annual
cost recovery deductions in the first several years following the conversion
will be approximately $8.7 million or 4.5 cents per unit less than cost recovery
deductions of the Cooperative in recent years. These are the inevitable
consequences of the conversion and are subject to adjustment to conversion date
values and discounts as explained in the discussion of the tax consequences of
the conversion.
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TAX CONSEQUENCES OF LLC UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME OR LOSS
Each unit holder and holder of a Special Financial Interest will be
required to report on his income tax return for his taxable year with which or
within which ends the LLC's taxable year his distributive share of the income,
gains, losses and deductions of the LLC without regard to whether corresponding
cash distributions are received. To illustrate, each calendar year unit holder
will include his share of the LLC's 1999 taxable income or loss on his 1999
income tax return. A unit holder with a June 30 fiscal year will report his
share of the LLC's 1999 taxable income or loss on his income tax return for the
fiscal year ending June 30, 2000. Holders of Special Financial Interests will be
allocated taxable income only if they receive a corresponding cash distribution.
The LLC will provide each unit holder with an annual Schedule K-1 indicating the
member's share of the LLC's income, loss and separately stated components
thereof.
TAX TREATMENT OF DISTRIBUTIONS
Distributions by the LLC to a unit holder or the holder of a Special
Financial Interest generally will not be taxable to the unit holder for federal
income tax purposes as long as distributions do not exceed his basis in his
units immediately before the distribution. Cash distributions in excess of unit
basis -- which are considered unlikely -- are treated as gain from the sale or
exchange of the units under the rules described below for unit dispositions.
INITIAL TAX BASIS OF UNITS AND PERIODIC BASIS ADJUSTMENTS
Under Code Section 722, a member's initial basis in his or her membership
interest in the LLC will be equal to the sum of the amount of money and the
contributor's adjusted basis of any property contributed to the LLC. Such amount
is increased by a member's share of the LLC's debt.1 Since the property deemed
to be contributed by each member is the property received in the constructive
liquidation, each member's initial basis in the LLC units should be equal to the
fair market value of those units as reported by the member in determining gain
or loss on the conversion transaction as described above plus the member's share
of the LLC's debt. Pursuant to the Appraisal and subject to adjustment to
conversion date amounts, the initial basis will be $2.73 per unit consisting of
a net property contribution of $1.10 plus $1.63 per unit share of debt.
A member's initial basis in LLC units will be increased to reflect the
member's distributive share of the LLC's taxable income and tax-exempt income,
certain amounts attributable to depletion that are not likely to be relevant,
and any increase in a member's share of the LLC's debt. If a member makes
additional capital contributions at any time, the adjusted unit basis is
increased by the amount of any cash contributed or the adjusted basis in any
property contributed.
A member's unit basis will be decreased (but not below zero) by (1) the
amount of any cash distributed to the member; (2) the basis of any other
property distributed; (3) the amount of certain depletion deductions; (4) the
member's distributive share of losses and nondeductible expenditures of the LLC
that are "not properly chargeable to capital account" and (5) any reduction in
such member's share of LLC's debt.
The unit basis calculations are complex. A member is only required to
compute unit basis if the computation is necessary to determine his tax
liability but accurate records should be maintained. Typically, basis
computations are necessary at the following times:
1. The end of a taxable year during which the LLC suffered a loss, for the
purpose of determining the deductibility of the member's share of the
loss;
2. Upon the liquidation or disposition of a member's interest, and
- ------------------
(1) Inclusion of debt in the basis of a unit holder's LLC interest is
technically true but is unnecessarily confusing. During the tax shelter boom
of the 1980s, inclusion of debt in the basis of a partnership interest
allowed partnership investors to write off losses in excess of their
investment. This led to the at-risk and passive loss restrictions. Inclusion
of debt in basis is unlikely to have any material tax consequences to an LLC
unit holder.
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3. Upon the nonliquidating distribution of cash or property to a partner, in
order to ascertain the basis of distributed property or the taxability of
cash distributed.
Except in the case of a taxable sale of a unit or liquidation of the LLC,
exact computations usually are not necessary. For example, a unit holder who
regularly receives cash distributions that are less than or equal to his share
of the LLC's taxable income will have a positive unit basis at all times.
Consequently, no computations are necessary to demonstrate that cash
distributions are not taxable to him under Code Section 731(a) (1). The purpose
of the basis adjustments is to keep track of a member's "tax investment" in LLC,
with a view toward preventing double taxation or exclusion from taxation of
income items upon ultimate disposition of the units.
DEDUCTIBILITY OF LOSSES; PASSIVE LOSS LIMITATIONS
In general, a unit holder may deduct losses allocated to him, subject to a
number of restrictions. Those restrictions include a general rule that losses
cannot be deducted if they exceed a member's basis in his units nor to the
extent they exceed the member's at-risk amount. These specific restrictions are
not likely to impact the members of the LLC. However, if the LLC incurs a
taxable loss or if taxable income is insufficient to cover interest expense on
the Cooperative related borrowing, the passive activity loss deduction rules are
likely to have widespread effect.
Code Section 469 substantially restricts the ability of taxpayers to deduct
losses from passive activities. Passive activities generally include activities
conducted by pass-through entities, such as the LLC and other partnerships,
limited liability companies or S corporations, in which the taxpayer does not
materially participate. Generally, losses from passive activities are deductible
only to the extent of the taxpayer's income from other passive activities.
Passive activity losses that are not deductible because of these rules may be
carried forward and deducted against future passive activity income or may be
deducted in full upon disposition of a unit holder's entire interest in the LLC
to an unrelated party in a fully taxable transaction.
It is important to note that "passive activities" do not include dividends
and interest income that normally is considered to be "passive" in nature; nor
do they include farming operations in which the taxpayer is a material
participant.
Many members have borrowed to purchase their equity interest in the
Cooperative and have been deducting the interest expense. After the conversion,
such interest expense will be aggregated with other items of income and loss
from passive activities and subjected to the passive activity loss limitation.
To illustrate, if a member's only passive activity is the LLC, and if the LLC
incurs a net loss, no interest expense on related borrowing would be deductible.
If that member's share of the LLC's taxable income is less than the related
interest expense, the excess would be nondeductible. In both instances, the
disallowed interest would be suspended and would be deductible against future
passive activity income or upon disposition of the member's entire interest in
the LLC to an unrelated party in a fully taxable transaction.
ALTERNATIVE MINIMUM TAX
If the LLC adopts accelerated methods of depreciation, it is possible that
taxable income for Alternative Minimum Tax purposes might exceed regular taxable
income passed through to the unit holders. No decision has been made on this
point but we believe that most unit holders are unlikely to be adversely
affected by such excess alternative minimum taxable income.
TAX CONSEQUENCES OF DISPOSITION OF UNITS
RECOGNITION OF GAIN OR LOSS
Gain or loss will be recognized on a sale of LLC units equal to the
difference between the amount realized and the unit holder's basis in the units
sold. Amount realized includes cash and the fair market value of other property
received plus the member's share of the LLC's debt. Because of the inclusion of
debt in basis, it is possible that a member could have a tax liability on sale
that exceeds the proceeds of sale. While such a result is common in "tax
shelters," it is quite unlikely in the case of a typical business operation such
as will be conducted by the LLC.
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Gain or loss recognized by a unit holder on the sale or exchange of a unit
held for more than one year generally will be taxed as long-term capital gain or
loss. A portion of this gain or loss, however, will be separately computed and
taxed as ordinary income or loss under Code Section 751 to the extent
attributable to depreciation recapture or other "unrealized receivables" or
"substantially appreciated inventory" owned by the LLC. The LLC will adopt
conventions to assist those members that sell units in apportioning the gain
among the various categories.
ALLOCATIONS AND DISTRIBUTIONS FOLLOWING UNIT TRANSFERS
If any unit is transferred during any accounting period in compliance with
the provisions of Article X of the Operating Agreement, then solely for purposes
of making allocations and distributions, the LLC will use the interim closing of
the books method (rather than a daily proration of profit or loss for the entire
period) and the convention that recognizes the transfer as of the beginning of
the month following the month in which the notice, documentation and information
requirements of Article VIII have been substantially complied with. All
distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board the authority to adopt other reasonable methods and/or conventions.
EFFECT OF CODE SECTION 754 ELECTION ON CERTAIN UNIT TRANSFERS
The adjusted basis of each unit holder in his LLC units ("outside basis")
initially will equal his proportionate share of the adjusted basis of the LLC in
its assets ("inside basis"). Over time, however, it is probable that changes in
unit values and cost recovery deductions will cause the value of a unit to
differ materially from the unit holder's proportionate share of the inside
basis.
Section 754 of the Code permits a partnership to make an election that
allows a transferee who acquires units either by purchase or upon the death of a
unit holder to adjust his share of the inside basis to fair market value as
reflected by the unit price in the case of a purchase or the estate tax value of
the unit in the case of an acquisition upon death of a unit holder. Once the
amount of the transferee's basis adjustment is determined, it is allocated among
the LLC's various assets pursuant to Code Section 755.
A Section 754 election is beneficial to the transferee when his outside
basis is greater than his proportionate share of the entity's inside basis. In
this case, a special calculation is made solely for the benefit of the
transferee that will determine his cost recovery deductions and his gain or loss
on disposition of LLC property by reference to his higher outside basis. The
Section 754 election will be detrimental to the transferee if his outside basis
is less than his proportionate share of inside basis.
Code Section 743(b) provides that the partnership or LLC is responsible for
making the basis adjustments. However, the unit transferees are required to
report the basis adjustments. Transferees accomplish this by attaching
statements to their returns that show how the Section 743(b) adjustment was
determined and how the adjustment was allocated among the various partnership
properties. No existing guidance indicates when (i.e., before or after the
Schedule K-1) the effect of the basis adjustment to specific partnership items
is to be determined or who is required to make and report the adjustments to the
partnership items.
Proposed Regulations issued in January, 1998, clarify that partnerships and
LLCs are required to make the basis adjustments. In addition, the Proposed
Regulations place the responsibility for reporting basis adjustments on the
entity. The entity reports basis adjustments by attaching statements to their
partnership returns when they acquire knowledge of transfers subject to section
743. In addition, partnerships and LLCs are required to adjust specific
partnership items in light of the basis adjustments. Consequently, amounts
reported on the transferee's Schedule K-1 are adjusted amounts.
Transferees are subject to an affirmative obligation to notify partnerships
and LLCs of their basis in acquired interests. To accommodate entity concerns
about the reliability of the information provided, partnerships and LLCs are
entitled to rely on the written representations of transferees concerning either
the amount paid for the partnership interest or the transferee's basis in the
partnership interest under Code Section 1014 (unless clearly erroneous).
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Section 9.3 of the Operating Agreement provides that the LLC will not make
a Section 754 election unless the Board determines that the tax benefits made
available to affected transferees by the election are likely to be sufficient to
justify the increased cost and administrative burden of accounting for the
resulting basis adjustments. Depending on the circumstances, the value of units
may be effected positively or negatively by whether or not the LLC makes a
Section 754 election. The Board intends to monitor prices at which units change
hands and is likely to authorize the election only when and if unit prices
become materially greater than the LLC's per unit inside basis and only if it
determines that such material difference is likely to continue or increase over
time. If the LLC decides to make a Section 754 election, the election is made by
the LLC on a timely filed partnership income tax return and it is effective for
transfers occurring in taxable year of the return in which the election is made.
Once made, the Section 754 election is irrevocable unless the Internal Revenue
Service consents to its revocation.
IRS REPORTING REQUIREMENT
Article X of the Operating Agreement contains the requirements for a valid
transfer of units, including proper documentation and Board approval. In
addition, the IRS requires a taxpayer who sells or exchanges a unit to notify
LLC in writing within thirty days or, for transfers occurring on or after
December 16 of any year, by January 15 of the following year. Although the IRS
reporting requirement is limited to "Section 751(a) exchanges," it is likely
that any transfer of an LLC unit will constitute a Section 751(a) exchange. The
written notice required by the IRS must include the names and addresses of both
parties to the exchange, the identifying numbers of the transferor and, if
known, of the transferee and the exchange date. The IRS imposes a penalty of $50
for failure to file the written notice unless reasonable cause can be shown.
OTHER TAX MATTERS
TAX INFORMATION TO UNIT HOLDERS; CONSISTENT REPORTING
The LLC will be required to provide each unit holder with a Schedule K-1
(or authorized substitute therefore) on an annual basis. Harsh penalties are
provided for failure to do so unless reasonable cause for the failure is
established.
Each unit holder's Schedule K-1 will set out the holder's distributive
share of each item of income, gain, loss, deduction or credit that is required
to be separately stated. Each unit holder must report all items consistently
with Schedule K-1 or, if an inconsistent position is reported, must notify the
IRS of any inconsistency by filing Form 8062 "Notice of Inconsistent Treatment
or Administrative Adjustment Request (AAR)" with the original or amended return
in which the inconsistent position is taken.
IRS AUDIT PROCEDURES
Prior to 1982, regardless of the size of a partnership, adjustments to a
partnership's items of income, gain, loss, deduction, or credit had to be made
in separate proceedings with respect to each partner individually. Because a
large partnership sometimes had many partners located in different audit
districts, adjustments to items of income, gains, losses, deductions, or credits
of the partnership had to be made in numerous actions in several jurisdictions,
sometimes with conflicting outcomes.
The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") established
unified audit rules applicable to all but certain small partnerships. These
rules require the tax treatment of all "partnership items" to be determined at
the partnership, rather than the partner, level. Partnership items are those
items that are more appropriately determined at the partnership level than at
the partner level, as provided by regulations. Since the LLC will be taxed as a
partnership, the TEFRA rules are applicable to it and its unit holders.
The IRS may challenge the reporting position of a partnership by conducting
a single administrative proceeding to resolve the issue with respect to all
partners. But the IRS must still assess any resulting deficiency against each of
the taxpayers who were partners in the year in which the understatement of tax
liability arose. Any partner of a partnership can request an administrative
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adjustment or a refund for his own separate tax liability. Any partner also has
the right to participate in partnership-level administrative proceedings. A
settlement agreement with respect to partnership items binds all parties to the
settlement.
The TEFRA rules establish the "Tax Matters Partner" as the primary
representative of a partnership in dealings with the IRS. The Tax Matters
Partner must be a "member-manager" which is defined as an LLC member who, alone
or together with others, is vested with the continuing exclusive authority to
make the management decisions necessary to conduct the business for which the
organization was formed. In the LLC's case, this would be a member of the Board
of Directors who is also a member of LLC. Section 9.4 of the Operating Agreement
provides for Board designation of the Tax Matters Partner and for default
designations if it fails to do so.
The IRS generally is required to give notice of the beginning of
partnership-level administrative proceedings and any resulting administrative
adjustment to all partners whose names and addresses are furnished to the IRS.
For partnerships with more than 100 partners, however, the IRS generally is not
required to give notice to any partner whose profits interest is less than one
percent.
After the IRS makes an administrative adjustment, the Tax Matters Partner
(and, in limited circumstances, certain other partners) may file a petition for
readjustment of partnership items in the Tax Court, the district court in which
the partnership's principal place of business is located, or the Claims Court.
NEW ELECTIVE PROCEDURES FOR LARGE PARTNERSHIPS
The Taxpayer Relief Act of 1997 contains an elective provision under which
the income tax reporting and IRS auditing of large partnerships (more than 100
partners) is streamlined. The Act reduces the number of items that must be
separately stated on the Schedules K-1 that are issued to the partners which
will ease the burden on their tax preparers.
If the election is made, IRS audit adjustments generally will flow through
to the partners for the year in which the adjustment takes effect. However, the
partnership may elect to pay an imputed underpayment that is calculated by
netting the adjustments to the income and loss items of the partnership and
multiplying that amount by the highest tax rate (whether individual or
corporate). A partner may not file a claim for credit or refund of his allocable
share of the payment.
Certain timing adjustments are made in the year of audit in order to avoid
adjustments to multiple years where possible. In addition, the partnership,
rather than the partners individually, generally is liable for any interest and
penalties that result from a partnership audit adjustment. Penalties (such as
the accuracy and fraud penalties) are determined on a year-by-year basis
(without offsets) based on an imputed underpayment. Any payment (for Federal
income taxes, interest, or penalties) that an electing large partnership is
required to make is non-deductible.
Under the electing large partnership audit rules, a partner is not
permitted to report any partnership items inconsistently with the partnership
return, even if the partner notifies the IRS of the inconsistency. The IRS may
treat a partnership item that was reported inconsistently by a partner as a
mathematical or clerical error and immediately assess any additional tax against
that partner.
The IRS is not required to give notice to individual partners of the
commencement of an administrative proceeding or of a final adjustment. Instead,
the IRS is authorized to send notice of a partnership adjustment to the
partnership itself by certified or registered mail. An administrative adjustment
may be challenged in the Tax Court, the district court in which the
partnership's principal place of business is located, or the Claims Court.
However, only the partnership, and not partners individually, can petition for a
readjustment of partnership items.
The Board of Directors of the LLC will review the new large partnership
procedures with its legal counsel and certified public accountants to determine
whether it appears advantageous to elect to be subject to the new procedures.
Because of the substantial cost and administrative burden involved in
implementing IRS audit adjustments at the unit holder level under the existing
procedures, it is likely that the Board will decide to make the election.
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SELF-EMPLOYMENT TAX
The IRS has held on audit that the Cooperative's members currently are
subject to self-employment tax on value added payments although at least one
retired member has successfully escaped self-employment tax on such payments.
The Code and Treasury Regulations provide that general partners are subject to
self-employment tax on their distributive share of partnership income and that
limited partners who do not render services to the partnership are not subject
to self-employment tax. Neither the Code nor the Treasury Regulations address
the treatment of LLC unit holders for self-employment tax purposes. Proposed
Regulations, however, were issued in 1997 that provide generally for imposition
of the self-employment tax on LLC unit holders only if they (1) have personal
liability for LLC obligations, have authority to contract on behalf of the LLC,
or participate in the LLC's business for more than 500 hours each year. Few, if
any, of the LLC's unit holders would be subject to self-employment tax under
this test.
The status of the Proposed Regulations is uncertain because they were
subject to a Congressional moratorium that ended July 1, 1998 and the Treasury
has not taken steps to finalize them. Nevertheless, because of the similarity of
LLC unit holders and limited partners, it is believed to be highly likely that
LLC unit holders will be treated similar to limited partners, i.e., generally
not subject to self-employment tax on their share of LLC earnings. This will
represent a substantial saving relative to cooperative taxation for those LLC
unit holders whose FICA wages and self-employment earnings are below the maximum
FICA income base which is $72,600 for 1999.
STATE INCOME TAXES
LLC unit holders generally are subject to tax in their state of residence
as well as in those states in which the entity does business if their share of
income exceeds the minimum filing requirements. Since the LLC will potentially
be doing business in several states, this could create a substantial reporting
burden for the members. Most states, however, allow "composite reporting" by
partnerships and limited liability companies which means that the entity pays
income taxes to the various states and the individual members are relieved of
the reporting responsibility in states other than their state of residence and
their state of residence generally will allow a tax credit for state income
taxes paid by the entity for the benefit of the unit holder. For example, a unit
holder who is a resident of Minnesota will report his entire share of the LLC's
income but will receive credit on his Minnesota return for taxes paid to
Minnesota and other states on his behalf. The Minnesota resident unit holder
generally will not have to file individually in other states.
LEGAL MATTERS
The validity of the Class A units to be issued in connection with the
conversion will be passed upon by Dorsey & Whitney, LLP.
EXPERTS
The consolidated financial statements of Minnesota Corn Processors, Inc. at
March 31, 1998 and 1997 and for the year ended March 31, 1998, the six month
fiscal period ended March 31, 1997, and the year ended September 30, 1996
provided in this Information Statement -- Prospectus have been audited by
Clifton Gunderson L.L.C., independent auditors, as set forth in their report
thereon. The consolidated financial statements have been included herein in
reliance upon said report given upon the authority of said firm as experts in
accounting and auditing.
64
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Following the conversion, the LLC will file annual, quarterly and special
reports with the SEC. You may read and copy any reports that the LLC files at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The reports also will be available from
commercial document retrieval services and at the SEC's web site
(http://www.sec.gov).
The LLC has filed with the SEC a Registration Statement on Form S-4 that
registers the distribution to members of the Class A units to be issued in
connection with the conversion. This Information Statement - Prospectus is a
part of that Registration Statement. As allowed by SEC rules, this Information -
Prospectus does not contain all the information you can find in the Registration
Statement or the exhibits to the Registration Statement.
The LLC intends to furnish Class A unit holders with annual reports
containing financial statements audited by an independent certified public
accounting firm.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THE INFORMATION
STATEMENT -- PROSPECTUS TO VOTE ON THE CONVERSION. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THE
INFORMATION -- STATEMENT PROSPECTUS. THIS INFORMATION -- STATEMENT PROSPECTUS IS
DATED ____________, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED
IN THIS DOCUMENT IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE MAILING OF
THE INFORMATION -- STATEMENT PROSPECTUS TO MEMBERS NOR THE ISSUANCE OF CLASS A
UNITS IN THE CONVERSION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
65
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED OF MINNESOTA CORN PROCESSORS LLC)
INTRODUCTION:
The accompanying unaudited condensed financial information of Minnesota
Corn Processors LLC gives effect to the dissolution of Grower Procurement Agency
(GPA) and the merger of Liquid Sugars, Inc. (LSI) into Minnesota Corn
Processors.
The pro forma balance sheet was prepared as if such transactions had
occurred on March 31, 1998. The pro forma statement of operations was prepared
as if such transactions had occurred at April 1, 1997.
The pro forma condensed consolidated balance sheet and statement of
operations are not necessarily indicative of the consolidated financial position
or results of operations as they might have been had the transactions actually
occurred on the dates indicated. The pro forma condensed balance sheet and
statement of operations should be read in conjunction with the consolidated
financial statements of Minnesota Corn Processors elsewhere in this Information
Statement -- Prospectus beginning on page F-1.
66
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- --------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 744 $ -- $ 744
Receivables .................................... 53,229 -- 53,229
Inventories .................................... 43,819 -- 43,819
Prepaids ....................................... 5,531 -- 5,531
Margin deposits ................................ 4,083 -- 4,083
Recoverable income taxes ....................... 114 -- 114
Option contract premiums ....................... 1,457 -- 1,457
Deferred income taxes .......................... 243 (243)(A) --
--------- ------- ---------
Total current assets .......................... 109,220 (243) 108,977
--------- ------- ---------
INVESTMENTS AND OTHER ASSETS
Investments in cooperatives .................... 9,014 -- 9,014
Deferred start up costs ........................ 171 -- 171
Deferred debt refinancing costs ................ 3,470 -- 3,470
Cash surrender value of life insurance ......... 250 -- 250
Non-current receivables ........................ 649 -- 649
Non-current prepaids ........................... 634 -- 634
Goodwill ....................................... 3,839 -- 3,839
--------- ------- ---------
Total investments and other assets ............ 18,027 -- 18,027
--------- ------- ---------
PROPERTY AND EQUIPMENT .......................... 685,637 -- 685,637
Less accumulated depreciation .................. 163,148 -- 163,148
--------- ------- ---------
Net property and equipment .................... 522,489 -- 522,489
--------- ------- ---------
TOTAL ASSETS .................................... $ 649,736 $ (243) $ 649,493
========= ======= =========
LIABILITIES AND MEMBER EQUITIES
CURRENT LIABILITIES
Short-term notes payable ....................... $ 7,967 $ -- $ 7,967
Current portion of long-term debt .............. 1,660 -- 1,660
Accounts payable - grain ....................... 11,385 -- 11,385
Accounts payable - other ....................... 37,410 -- 37,410
Accrued expenses and taxes, other
than income taxes ............................. 8,216 -- 8,216
--------- ------- ---------
Total current liabilities ..................... 66,638 -- 66,638
LONG-TERM DEBT .................................. 295,000 -- 295,000
DEFERRED INCOME TAXES ........................... 655 (655)(A) --
DEFERRED COMPENSATION ........................... 1,076 -- 1,076
--------- ------- ---------
Total liabilities ............................. 363,369 (655) 362,714
--------- ------- ---------
MEMBER EQUITIES
Voting member units ............................ 201,664 412 202,076
Non-voting member units ........................ 106,237 -- 106,237
Loss allocation recoverable .................... (21,534) -- (21,534)
--------- ------- ---------
Total member equities ......................... 286,367 412 286,779
--------- ------- ---------
TOTAL LIABILITIES AND
MEMBER EQUITIES ................................ $ 649,736 $ (243) $ 649,493
========= ======= =========
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
67
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- ------------- ------------
<S> <C> <C> <C>
NET SALES, STORAGE, AND
HANDLING CHARGES ................................... $ 563,193 $ -- $ 563,193
COST OF GOODS ....................................... 525,003 -- 525,003
--------- ------ ---------
Gross profit ...................................... 38,190 -- 38,190
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES ............................ 45,917 -- 45,917
--------- ------ ---------
Net operating loss ................................ (7,727) -- (7,727)
--------- ------ ---------
OTHER INCOME (EXPENSE)
Interest expense ................................... (31,901) -- (31,901)
Interest and other income (net) .................... 2,409 -- 2,409
Gain on disposal of property and equipment ......... 30 -- 30
Loss on sales contract ............................. (7,986) -- (7,986)
--------- ------ ---------
(37,448) -- (37,448)
--------- ------ ---------
Net loss before income taxes ...................... (45,175) -- (45,175)
PROVISION FOR INCOME TAXES .......................... -- 412(A) 412
--------- ------ ---------
NET LOSS ............................................ $ (45,175) $ 412 $ (44,763)
========= ====== =========
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
68
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF MEMBER EQUITIES
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
VOTING UNITS OF EQUITY NON-VOTING
MEMBER PARTICIPATION MEMBER CONTRIBUTED
UNITS CERTIFICATES UNITS CAPITAL
---------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1997 ............. $ -- $ 246,868 $ -- $ 1,008
Loss allocation:
Payments by members ............... -- -- -- --
Less discounts on payments ........ -- -- -- --
1998 net loss ...................... -- -- -- --
Equities issued .................... -- 6 119,790 --
Adjustments ........................ -- (14) -- --
Pro forma adjustments:
Allocate 30% of 1997/98 loss to
non-voting member units .......... -- -- (13,553) --
Transfer all other forms of
allocated equities to voting
member units ..................... 201,664 (246,860) -- (1,008)
69
Elimination of deferred
income taxes ..................... 412 -- -- --
-------- ----------- --------- ---------
PRO FORMA BALANCE,
MARCH 31, 1998 .................... $202,076 $ -- $ 106,237 $ --
======== =========== ========= =========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
UNALLOCATED NON-QUALIFIED LOSS RETAINED
CAPITAL PATRONAGE ALLOCATED EARNINGS
DEFICIT REFUNDS TO MEMBERS (DEFICIT) TOTAL
------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1997 ............. $ (18,018) $ 3,849 $ (21,585) $ (403) $ 211,719
Loss allocation:
Payments by members ............... -- -- 41 -- 41
Less discounts on payments ........ (10) -- 10 -- --
1998 net loss ...................... (45,151) -- -- (24) (45,175)
Equities issued .................... -- -- -- -- 119,796
Adjustments ........................ -- -- -- -- (14)
Pro forma adjustments:
Allocate 30% of 1997/98 loss to
non-voting member units .......... 13,553 -- -- -- --
Transfer all other forms of
allocated equities to voting
member units ..................... 49,626 (3,849) -- 427 --
Elimination of deferred
income taxes ..................... -- -- -- -- 412
--------- --------- --------- ------ ---------
PRO FORMA BALANCE,
MARCH 31, 1998 .................... $ -- $ -- $ (21,534) $ -- $ 286,779
========= ========= ========= ====== =========
</TABLE>
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
69
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................. $ (45,175) $ 412(A) $ (44,763)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ........................... 43,185 -- 43,185
Non-cash patronage refunds received ..................... (1,261) -- (1,261)
Gain on disposal of equipment ........................... (30) -- (30)
Deferred compensation ................................... 62 -- 62
Deferred debt refinancing costs ......................... (3,610) -- (3,610)
Changes in operating assets and liabilities:
Receivables ............................................ (7,480) -- (7,480)
Inventories ............................................ 1,942 -- 1,942
Cash value of life insurance ........................... 87 -- 87
Prepaids ............................................... 177 -- 177
Margin deposit account ................................. (3,680) -- (3,680)
Accounts payable - grain ............................... 4,417 -- 4,417
Accounts payable - other ............................... 10,731 -- 10,731
Accrued expenses and taxes, other
than income taxes ..................................... (988) -- (988)
Income taxes recoverable/payable - current
and deferred .......................................... (194) (412)(A) (606)
Option contract premiums ............................... (829) -- (829)
--------- ------- ---------
Net cash used by operating activities ................. (2,646) -- (2,646)
--------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ...................... (12,672) -- (12,672)
Proceeds from disposal of property and equipment ......... 91 -- 91
Investments purchased .................................... (313) -- (313)
--------- ------- ---------
Net cash used by investing activities ................. (12,894) -- (12,894)
--------- ------- ---------
</TABLE>
70
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Prinicipal payments on short-term borrowings
from members and others (net) ..................... $ 3,086 $ -- $ 3,086
Long-term borrowings ............................... 296,000 -- 296,000
Principal payments on long-term debt ............... (409,683) -- (409,683)
Loss allocation payments from members .............. 41 -- 41
Equity adjustments ................................. (15) -- (15)
Equities issued .................................... 119,796 -- 119,796
---------- ---- ----------
Net cash provided by financing activities ......... 9,225 -- 9,225
---------- ---- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ........................................ (6,315) -- (6,315)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR ............................................ 7,059 -- 7,059
---------- ---- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR ........................................ $ 744 $ -- $ 744
========== ==== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ...................................... $ 33,573 $ -- $ 33,573
Income taxes paid .................................. 194 -- 194
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
71
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
Minnesota Corn Processors LLC ("the company") (MCP) is a limited liability
company incorporated in Colorado for the purpose of producing corn related
products. The company produces corn starch, syrup, gluten, fuel ethanol, and
high fructose corn syrup from its company processing facilities in Marshall,
Minnesota, and Columbus, Nebraska.
The company is also a sweetener blending and storage operation, which
provides its products to various types of customers (including food processors)
located in the Western United States and Southwestern Canada.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The company sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, food
processors, etc., on terms it establishes for each customer. Credit sales are
made throughout the United States and, to a much lesser degree, in Canada.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers all
highly liquid investments in debt instruments of other entities, with a maturity
date of less than three months at the date of purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations assume a
first-in, first-out flow of goods.
HEDGE TRANSACTIONS
The company generally follows a policy of managing its risk of future grain
price fluctuations by hedging in established commodities markets. As grain is
used in the production process, realized gains or losses and option contract
premiums on these positions are recognized. Marketing gains or losses realized
on grain prior to the delivery period for which they are identified as
protecting are deferred and recognized pro rata through the identified delivery
period.
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the company, it is currently evaluating the reporting requirements
under this new standard.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other
72
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
cooperatives is deducted from the investment balance. The investments are not
transferable. No cash is received until such time as redeemed at the discretion
of the cooperative. Patronage refunds and redemptions are recorded in the year
received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The company makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the company will also match a portion of employee
contributions.
The company also contributes to the pension funds for the union employees
as required by the respective union contracts. In addition, a portion of the
employees is covered by a collective bargaining agreement.
DEFERRED COMPENSATION
The company maintains non-qualified deferred compensation agreements with
certain of its employees. The present value of the future payments amounted to
$1,075,727 and $1,013,232 at March 31, 1998 and 1997, respectively. These
amounts are based on estimated rates of returns. Actual future payments could
differ from these estimates. The increase in future benefits attributable to
interest is expensed yearly. Life insurance contracts have been acquired
covering the life of most of the employees covered by the deferred compensation
arrangements, with the company being both the owner and the beneficiary of the
policies. The purpose of these life insurance policies is to assist in payment
of the deferred compensation obligations in the event of death or retirement of
the employee. The cash surrender value, amounting to $249,800 relating to these
policies, is included as a non-current asset in the balance sheet as of March
31, 1998.
INCOME TAXES
The company is not subject to federal income tax or most state income taxes
as a limited liability company.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $383,786 for the year ended March 31, 1998. Accumulated
amortization was $3,576,642 at March 31, 1998.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense for the year was $295,282.
Accumulated amortization was $590,564 at March 31, 1998.
73
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
Included in prepaid expenses is an amount of $3,788,324 representing costs
incurred by MCP in connection with the construction of a railroad bridge in
Columbus, Nebraska, to encourage another rail company to serve that location. It
is expected that the freight savings will result in the recovery of the costs
incurred over a three-year period. Accordingly, these costs are being amortized
on a straight-line basis over a three-year period effective October 1, 1996.
Amortization expense for the year amounted to $1,260,624. Accumulated
amortization was $1,890,936 at March 31, 1998.
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense for the year was
$140,000.
This information is an integral part of the accompanying financial statements.
74
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<S> <C>
Notes receivable ................................................ $ 494
Trade accounts .................................................. 51,062
Other - primarily tax refunds on capital expenditures and ethanol
production credits ............................................. 3,940
Allowance for doubtful accounts ................................. (1,617)
--------
TOTAL RECEIVABLES ............................................... $ 53,879
========
Balance sheet classification:
Current assets ................................................. $ 53,229
Non-current assets ............................................. 650
--------
TOTAL ........................................................... $ 53,879
========
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<S> <C>
Corn ...................................................... $ 3,638
Chemicals, supplies, and coal ............................. 5,584
Goods in process of manufacture ........................... 1,896
Finished goods ............................................ 14,231
Repair parts .............................................. 12,757
Sweetener inventory - bulk and specialty products ......... 4,491
Finished product in transit ............................... 1,222
-------
TOTAL INVENTORIES ......................................... $43,819
=======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
The entity's investment in property and equipment is recorded in the
balance sheet at cost. The principal elements of the totals shown in the balance
sheet are as follows:
<TABLE>
<S> <C>
Land and public improvements ................... $ 5,625
Land improvements .............................. 6,543
Buildings and leasehold improvements ........... 116,552
Equipment ...................................... 541,591
Railroad, switch engine, and rail cars ......... 1,961
Silos .......................................... 10,627
Construction in progress ....................... 2,738
--------
TOTAL PROPERTY AND EQUIPMENT ................... $685,637
========
</TABLE>
Depreciation expense was $42,366,307 for the year ended March 31, 1998.
75
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 4 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<S> <C>
Debentures payable ..................... $1,367
Bank of the West ....................... 6,600
------
TOTAL SHORT-TERM NOTES PAYABLE ......... $7,967
======
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
The loan payable to Bank of the West is secured by a first priority lien on
all of former LSI receivables, inventories, and equipment. The loan is due on
September 30, 1998. Interest is payable monthly at an interest rate of prime
plus .25% (8.75% at March 31, 1998).
The former LSI subsequently refinanced the line of credit and the bank
loan, which was with the Bank of the West, with a line of credit from MCP in an
aggregate amount of $15,000,000. This line of credit is due August 27, 2000.
Also, subsequently MCP, jointly with LSI, entered into a secured revolving
credit agreement with Harris Trust and Savings Bank and U.S. Bancorp Ag Credit,
Inc. in an aggregate amount of $50,000,000. The company is jointly and severally
liable for the entire amount of any future outstanding balances on this loan.
76
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED
Long-term debt comprises the following elements:
<TABLE>
<S> <C>
Harris Trust and Savings Bank and FBS Ag Credit, Inc. -- outstanding
on $50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts
are secured by security agreements on inventories, accounts receivable, and
assignment of hedging account. Interest at variable rates (6.81% at March 31, 1998).. $ 5,000
Private Placement Notes - Series A - repayment to be made at the
rate of $3,571,429 per year commencing September 1, 2001, with final payment
due September 1, 2007. Secured by real estate mortgage. Interest payable
semi-annually at 7.57% per annum. ................................................... 25,000
Private Placement Notes - Series B - repayment to be made at the
rate of $24,000,000 per year commencing September 1, 2005, with final payment
due September 1, 2009. Secured by real estate mortgage. Interest payable
semi-annually at 7.72% per annum. ................................................... 120,000
Private Placement Notes - Series C - repayment to be made at the
rate of $6,428,571 per year commencing September 1, 2006, with final payment
due September 1, 2012. Secured by real estate mortgage. Interest payable
semi-annually at 7.83% per annum. ................................................... 45,000
Private Placement Notes - Series D - repayment to be made at the
rate of $20,000,000 per year commencing September 1, 2003, with final payment
due September 1, 2007. Secured by real estate mortgage. Interest payable
at a variable rate (7.175% at March 31, 1998). ...................................... 100,000
The Bank of the West loans are secured by all receivables, inventories, and
equipment of LSI Interest is payable at prime plus 0.75% and 0.50%. Repayment
terms:
(A) $20,000 per month with final payment due September 30, 2000.
Interest rate 9.25% at March 31, 1998. ............................................. 600
(B) $10,000 per month with final payment due September 30, 1999.
Interest rate 9.25% at March 31, 1998. ............................................. 180
(C) $20,000 per month with final payment due December 31, 2001.
Interest rate 8.75% at March 31, 1998. ............................................. 880
--------
Total ............................................................................... 296,660
Less current portion ................................................................. 1,660
--------
LONG-TERM DEBT ....................................................................... $295,000
========
</TABLE>
Additionally there are loan covenants with respect to the Harris Trust and
Savings Bank, FBS Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000, maintain a current ratio
of 1.1 to 1, maintain minimum net working capital of $25,000,000, maintain
certain levels of cash flow, limit expenditures for capital expenditures, and
various other financial conditions. Additionally, Harris Trust & Savings Bank
and FSB Ag Credit, Inc. have a borrowing base limit on advances. The base
consists of portions of accounts receivable and inventories. At March 31, 1998,
the company was in compliance with, or had obtained a waiver for, all loan
provisions.
77
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
The loan covenants with respect to the Bank of the West loans require that
the former LSI maintain, among other things, a net worth of $12,000,000, current
assets of 1.1 times current liabilities, and total liabilities not to exceed
three times net worth. At March 31, 1998, the subsidiary was not in compliance
with all loan provisions and had not obtained a waiver from The Bank of the
West. As a result, the $1,660,000 in outstanding long-term debt at March 31,
1998, has been classified as a current liability in the balance sheet as current
portion of long-term debt. (See Note 4.)
Future maturities of long-term debt are as follows:
March 31, 1999 ......... $ 1,660
March 31, 2000 ......... 5,000
March 31, 2001 .........
March 31, 2002 ......... 3,572
March 31, 2003 ......... 3,571
Thereafter ............. 282,857
--------
TOTAL .................. $296,660
========
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the company are leased. In 1998,
payments on such operating leases, recorded as expense in the statement of
operations, totaled $10,914,552. Noncancellable future minimum payments are
required on these leases as follows for the next five years:
1998/99 ............ $10,937
1999/2000 .......... 10,191
2000/2001 .......... 9,536
2001/2002 .......... 9,202
2002/2003 .......... 8,816
Thereafter ......... 59,101
MCP is involved in various litigation at March 31, 1998. In the opinion of
management, the ultimate liability for such litigation would not have a material
adverse financial effect upon the company. Management further believes that all
or part of any potential liability for certain of these claims will be covered
by insurance, and management is vigorously defending all such claims against the
company.
MCP entered into a stock purchase agreement in which they will purchase a
7.5% ownership interest in a third party with an option to purchase an
additional 7.5% ownership interest.
It is expected that the total costs to complete the construction in
progress at March 31, 1998, for MCP will approximate $2,675,919.
In May, 1997, Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment ADM will
receive 30% of any future profits.
LSI has 25 employment contracts with employees, ranging from five to eight
years in length. Salary commitments under these contracts total $9,733,469 as of
March 31, 1998.
78
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 7 -- MEMBER EQUITIES
Included as non-current assets is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future cash distributions,
until the loss is repaid in full.
B. The loss represents a lien against the members' equity, and should a
member sell their units of equity participation, the amount of the loss
allocated to the members will be deducted from such sale.
NOTE 8 -- INCOME TAXES
As a result of the conversion of the cooperative to a limited liability
company, which is a non-taxable (pass-through) entity, deferred income taxes as
of March 31, 1997, were eliminated from the balance sheet, resulting in an
income tax benefit during the fiscal year ended March 31, 1998, in the amount of
$412,000.
NOTE 9 -- MARKETING OBLIGATIONS
Cash Grain Positions
The company had open contracts to purchase 5,634,303 bushels of cash corn
as of March 31, 1998. MCP has open futures purchase contracts for 26,000,000
bushels as of March 31, 1998. Additionally, MCP has an outstanding obligation on
3,445,504 bushels on deferred price contracts at March 31, 1998.
NOTE 10 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in cooperatives, there are no quoted market prices
and a reasonable estimate of the fair value could not be made without incurring
excessive costs.
NOTE 11 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis during 1998
amounted to $93,720.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
The company maintains cash and temporary investments at various financial
institutions. Balances on deposit are insured by the Federal Deposit Insurance
Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are
uninsured. Total cash and temporary investments held by the financial
institutions exceeded specified limits at various dates throughout the fiscal
year ended March 31, 1998.
NOTE 13 -- LOSS ON SALES CONTRACT
During the current year, an MCP customer exercised its contract option to
purchase additional corn sweeteners at a contract price that was less than the
current market price. This option was exercised after MCP had committed its corn
sweetener production to other customers. Because the customer has a binding
contract, MCP has agreed to subsidize this customer by purchasing product on the
open market and selling it to the customer at the reduced contract price. This
transaction will create an estimated loss of $7,986,000 and is included in the
statement of operations.
79
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 14 -- YEAR 2000 COMPLIANCE
Like most entities, the company may be exposed to risks associated with
Year 2000 dating problems. This problem affects computer software and hardware;
transactions with customers, vendors and other entities; and equipment dependent
on microchips. It is not possible for any entity to guarantee the results of its
own remediation efforts or to accurately predict the impact of Year 2000 dating
problems on third parties with which the cooperative does business. If
remediation efforts of the company or third parties with which it does business
are not successful, it is possible the Year 2000 dating problem could negatively
impact the company's financial condition and results of operations.
This information is an integral part of the accompanying financial statements.
80
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MINNESOTA CORN PROCESSORS, INC.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ................................................... F-1
Consolidated Balance Sheets as of March 31, 1998 and 1997 ........................... F-2
Consolidated Statements of Operations for the Years Ended March 31, 1998,
Six Month Fiscal Period Ended March 31, 1997 and the Year Ended September 30, 1996 .. F-3
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998,
Six Month Fiscal Year Ended March 31, 1997 and the Year Ended September 30, 1996 .... F-4
Consolidated Statements of Members' Equity for the Years Ended March 31, 1998,
Six Month Fiscal Period Ended March 31, 1997 and the Year Ended September 30, 1996 .. F-6
Summary of Significant Accounting Policies March 31, 1998, March 31, 1997,
and September 30, 1996 .............................................................. F-7
Notes to Consolidated Financial Statements .......................................... F-11
Unaudited Consolidated Balance Sheet as of September 30, 1998 ....................... F-18
Unaudited Consolidated Statement of Operations for the Six Months Ended
September 30, 1998 and 1997 ......................................................... F-19
Unaudited Consolidated Statement of Cash Flows for the Six Months Ended
September 30, 1998 and 1997 ......................................................... F-20
Unaudited Consolidated Statement of Members' Equity for the Six Months Ended
September 30, 1998 .................................................................. F-21
Summary of Significant Accounting Policies September 30, 1998 ....................... F-22
Notes to Unaudited Consolidated Financial Statements ................................ F-26
</TABLE>
81
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Minnesota Corn Processors and Consolidated Entities
Marshall, Minnesota
We have audited the accompanying consolidated balance sheets of Minnesota Corn
Processors and Consolidated Entities as of March 31, 1998 and 1997, and the
related consolidated statements of operations, member equities, and cash flows
for the year ended March 31, 1998, the six month fiscal period ended March 31,
1997, and the year ended September 30, 1996. These consolidated financial
statements are the responsibility of the cooperative's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minnesota Corn
Processors and Consolidated Entities as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for the year ended March 31,
1998, the six month fiscal period ended March 31, 1997, and the year ended
September 30, 1996, in conformity with generally accepted accounting principles.
/s/ Clifton Gunderson L.L.C.
Marshfield, Wisconsin
May 1, 1998, except for Note 15, as to
which the date is September 28, 1998
F-1
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................... $ 743,882 $ 7,059,433
Receivables ................................................. 53,229,357 45,799,234
Inventories ................................................. 43,818,954 45,761,420
Prepaids .................................................... 5,531,029 4,451,495
Margin deposits ............................................. 4,082,861 402,515
Deferred income taxes ....................................... 242,500 230,900
Recoverable income taxes .................................... 113,696 243,680
Option contract premiums .................................... 1,457,280 627,920
------------- -------------
Total current assets ....................................... 109,219,559 104,576,597
------------- -------------
INVESTMENTS AND OTHER ASSETS
Investments ................................................. 9,013,698 7,438,676
Deferred start up costs ..................................... 170,732 554,517
Deferred debt refinancing costs ............................. 3,469,949 --
Cash surrender value of life insurance ...................... 249,800 337,000
Non-current receivables ..................................... 649,693 600,040
Non-current prepaids ........................................ 634,613 1,890,950
Goodwill .................................................... 3,838,663 4,133,945
------------- -------------
Total investments and other assets ......................... 18,027,148 14,955,128
------------- -------------
PROPERTY AND EQUIPMENT 685,637,379 673,016,449
Less accumulated depreciation ............................... 163,147,927 120,992,735
------------- -------------
Net property and equipment ................................. 522,489,452 552,023,714
------------- -------------
TOTAL ASSETS ................................................. $ 649,736,159 $ 671,555,439
============= =============
LIABILITIES ANDMEMBER EQUITIES
CURRENT LIABILITIES
Short-term notes payable .................................... $ 7,967,176 $ 4,881,527
Current portion of long-term debt ........................... 1,660,000 409,538,655
Accounts payable - grain .................................... 11,385,344 6,968,672
Accounts payable - other .................................... 37,410,401 26,457,925
Accrued expenses and taxes, other than income taxes ......... 8,216,163 9,204,273
------------- -------------
Total current liabilities .................................. 66,639,084 457,051,052
LONG-TERM DEBT ............................................... 295,000,000 804,614
DEFERRED COMPENSATION ........................................ 1,075,727 1,013,232
DEFERRED INCOME TAXES ........................................ 654,500 967,100
------------- -------------
Total liabilities .......................................... 363,369,311 459,835,998
------------- -------------
MEMBER EQUITIES
Units of equity participation certificates .................. 246,858,933 246,867,655
Non-voting units of equity participation .................... 119,790,000 --
Contributed capital ......................................... 1,007,789 1,007,789
Unallocated capital deficit ................................. (63,177,920) (18,017,847)
Non-qualified patronage refunds ............................. 3,849,171 3,849,171
Loss allocated to members ................................... (21,534,536) (21,584,206)
Retained earnings (deficit) ................................. (426,589) (403,121)
------------- -------------
Total member equities ...................................... 286,366,848 211,719,441
------------- -------------
TOTAL LIABILITIES AND MEMBER EQUITIES ........................ $ 649,736,159 $ 671,555,439
============= =============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-2
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, MARCH 31, YEAR ENDED
1998 1997 1996
---------------- ------------------ ------------------
<S> <C> <C> <C>
NET SALES, STORAGE, AND HANDLING
CHARGES ..................................... $ 563,192,996 $ 237,461,920 $ 420,338,562
COST OF GOODS ................................ 525,002,748 207,464,457 441,371,956
------------- -------------- --------------
Gross proceeds (loss) ....................... 38,190,248 29,997,463 (21,033,394)
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES .................................... 45,917,515 19,972,556 25,922,710
------------- -------------- --------------
Net operating proceeds (loss) ............... (7,727,267) 10,024,907 (46,956,104)
------------- -------------- --------------
OTHER INCOME (EXPENSE) .......................
Interest expense ............................ (31,901,028) (20,347,464) (18,662,306)
Interest and other income (net) ............. 2,408,801 175,856 2,820,372
Gain (loss) on disposal of property
and equipment .............................. 30,344 17,902 (109,783)
Loss on sales contract ...................... (7,986,000) -- --
------------- -------------- --------------
(37,447,883) (20,153,706) (15,951,717)
------------- -------------- --------------
Net loss before income taxes ............... (45,175,150) (10,128,799) (62,907,821)
PROVISION FOR (INCOME TAXES) BENEFIT ......... 285 (59,124) --
------------- -------------- --------------
NET LOSS ..................................... $ (45,174,865) $ (10,187,923) $ (62,907,821)
============= ============== ==============
ALLOCATION OF NET PROCEEDS (LOSS)
Value added payments ........................ $ -- $ -- $ 1,291,779
Unallocated capital reserve ................. (45,151,397) (10,629,771) (12,081,615)
Loss to be allocated to members ............. -- -- (51,273,016)
Retained earnings (deficit) ................. (23,468) 441,848 (844,969)
------------- -------------- --------------
$ (45,174,865) $ (10,187,923) $ (62,907,821)
============= ============== ==============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-3
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, SEPTEMBER 30
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................... $ (45,174,865) $ (10,187,923) $ (62,907,821)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization ................... 43,185,375 18,228,484 28,367,875
Non-cash patronage refunds received ............. (1,261,572) -- (1,577,607)
(Gain) loss on disposal of equipment ............ (30,344) (13,402) 109,783
Deferred compensation ........................... 62,495 29,872 983,360
Deferred debt refinancing costs ................. (3,609,949) -- --
Changes in operating assets and liabilities:
Receivables .................................... (7,479,776) (1,251,347) (4,595,021)
Inventories .................................... 1,942,466 (3,171,273) (317,592)
Cash value of life insurance ................... 87,200 (23,000) (26,513)
Prepaids ....................................... 176,803 (3,052,395) 599,860
Margin deposit account ......................... (3,680,346) (402,515) 1,256,498
Accounts payable - grain ....................... 4,416,672 (4,198,533) (25,395,005)
Value added payments payable ................... -- -- (1,291,779)
Accounts payable - other ....................... 10,731,291 2,900,959 (28,139,320)
Accrued expenses and taxes, other than
income taxes .................................. (988,110) (1,587,220) 2,544,127
Income taxes recoverable/payable - current
and deferred .................................. (194,216) (261,552) (478,998)
Deferred market position ....................... -- -- (2,951,179)
Option contract premiums ....................... (829,360) (627,920) --
-------------- -------------- --------------
Net cash used by operating activities ......... (2,646,236) (3,617,765) (93,819,332)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ............... (12,671,480) (12,105,601) (187,162,400)
Other ............................................. -- -- 2,389
Proceeds from disposal of property and equipment 90,963 51,467 105,431
Investments purchased ............................. (313,450) -- (1,407,470)
Other investments purchased ....................... -- -- (145)
Purchase of subsidiary ............................ -- -- (4,717,627)
Bank overdraft .................................... -- (2,722,391) (12,495,661)
-------------- -------------- --------------
Net cash used by investing activities .......... (12,893,967) (14,776,525) (205,675,483)
-------------- -------------- --------------
</TABLE>
F-4
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, SEPTEMBER 30
1998 1997 1996
----------------- ----------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on short-term borrowings from
members and others (net) ............................ $ 3,085,649 $ (1,953,669) $ 281,990
Long-term borrowings ................................. 296,000,000 39,400,007 218,515,275
Principal payments on long-term debt ................. (409,683,269) (33,026,213) (75,120)
Loss allocation payments from members ................ 40,994 20,782,166 --
Equity adjustments ................................... (15,172) -- --
Equities issued ...................................... 119,796,450 -- --
Equities repurchased ................................. -- (59,498) (696,473)
Equities sold ........................................ -- -- 64,833,780
Patronage refunds paid in cash ....................... -- -- (2,198,415)
-------------- ------------- -------------
Net cash provided by financing activities ........... 9,224,652 25,142,793 280,661,037
-------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (6,315,551) 6,748,503 (18,833,778)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR/PERIOD ....................................... 7,059,433 310,930 19,144,708
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR/PERIOD .......................................... $ 743,882 $ 7,059,433 $ 310,930
============== ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid (including $7,176,751 capitalized
in 1996) ............................................ $ 33,573,344 $ 22,997,498 $ 25,839,057
Income taxes paid .................................... 193,931 -- --
Income taxes recovered ............................... -- 2,790 --
NON-CASH ACTIVITY
Purchase subsidiary with long-term borrowing ......... -- -- 11,782,373
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-5
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF MEMBER EQUITIES
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
UNALLOCATED
UNITS OF EQUITY NON-VOTING CAPITAL
PARTICIPATION UNITS OF EQUITY CONTRIBUTED RESERVE
CERTIFICATES PARTICIPATION CAPITAL (DEFICIT)
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 ................ $ 110,136,393 $ -- $ 2,753,030 $ 12,300,385
Transfers .............................. 64,879,953 -- (1,745,241) 1,745,241
Allocation of 1995 net proceeds ........ 7,328,054 -- -- --
Equities sold .......................... 64,833,780 -- -- --
Equities repurchased ................... (92,977) -- -- (603,495)
Value added paid ....................... -- -- -- --
1996 net loss .......................... -- -- -- (12,081,615)
------------- ------------ ------------ -------------
BALANCE, SEPTEMBER 30, 1996 ............. 247,085,203 -- 1,007,789 1,360,516
Transfers .............................. (209,298) -- -- 209,298
Equities repurchased ................... (8,250) -- -- (51,248)
Loss allocation:
Payments by members ................... -- -- -- --
Less discounts on payments ............ -- -- -- (8,906,644)
1997 net loss .......................... -- -- -- (10,629,769)
------------- ------------ ------------ -------------
BALANCE, MARCH 31, 1997 ................. 246,867,655 -- 1,007,789 (18,017,847)
Loss allocation:
Payments by members ................... -- -- -- --
Less discounts on payments ............ -- -- -- (8,676)
1998 net loss .......................... -- -- -- (45,151,397)
Equities issued ........................ 6,450 119,790,000 -- --
Adjustments ............................ (15,172) -- -- --
------------- ------------ ------------ -------------
BALANCE, MARCH 31, 1998 ................. $ 246,858,933 $119,790,000 $ 1,007,789 $ (63,177,920)
============= ============ ============ =============
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
QUALIFIED
PATRONAGE REFUNDS
NON-QUALIFIED UNITS OF EQUITY PAYABLE IN UNITS LOSS RETAINED
PATRONAGE PARTICIPATION OF EQUITY ALLOCATED TO EARNINGS
REFUNDS SUBSCRIPTIONS PARTICIPATION MEMBERS (DEFICIT)
--------------- ----------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 ................ $3,849,171 $ 64,879,953 $ 7,328,054 $ -- $ --
Transfers .............................. -- (64,879,953) -- -- --
Allocation of 1995 net proceeds ........ -- -- (7,328,054) -- --
Equities sold .......................... -- -- -- -- --
Equities repurchased ................... -- -- -- -- --
Value added paid ....................... -- -- -- (1,291,779) --
1996 net loss .......................... -- -- -- (49,981,237) (844,969)
---------- -------------- ------------- ------------- ----------
BALANCE, SEPTEMBER 30, 1996 ............. 3,849,171 -- -- (51,273,016) (844,969)
Transfers .............................. -- -- -- -- --
Equities repurchased ................... -- -- -- -- --
Loss allocation:
Payments by members ................... -- -- -- 20,782,166 --
Less discounts on payments ............ -- -- -- 8,906,644 --
1997 net loss .......................... -- -- -- -- 441,848
---------- -------------- ------------- ------------- ----------
BALANCE, MARCH 31, 1997 ................. 3,849,171 -- -- (21,584,206) (403,121)
Loss allocation:
Payments by members ................... -- -- -- 40,994 --
Less discounts on payments ............ -- -- -- 8,676 --
1998 net loss .......................... -- -- -- -- (23,468)
Equities issued ........................ -- -- -- -- --
Adjustments ............................ -- -- -- -- --
---------- -------------- ------------- ------------- ----------
BALANCE, MARCH 31, 1998 ................. $3,849,171 $ -- $ -- $ (21,534,536) $ (426,589)
========== ============== ============= ============= ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
TOTAL
---------------
<S> <C>
BALANCE, OCTOBER 1, 1995 ................ $ 201,246,986
Transfers .............................. --
Allocation of 1995 net proceeds ........ --
Equities sold .......................... 64,833,780
Equities repurchased ................... (696,472)
Value added paid ....................... (1,291,779)
1996 net loss .......................... (62,907,821)
-------------
BALANCE, SEPTEMBER 30, 1996 ............. 201,184,694
Transfers .............................. --
Equities repurchased ................... (59,498)
Loss allocation:
Payments by members ................... 20,782,166
Less discounts on payments ............ --
1997 net loss .......................... (10,187,921)
-------------
BALANCE, MARCH 31, 1997 ................. 211,719,441
Loss allocation:
Payments by members ................... 40,994
Less discounts on payments ............ --
1998 net loss .......................... (45,174,865)
Equities issued ........................ 119,796,450
Adjustments ............................ (15,172)
-------------
BALANCE, MARCH 31, 1998 ................. $ 286,366,848
=============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
Minnesota Corn Processors ("the cooperative") (MCP) is a member owned
cooperative incorporated in Minnesota for the purpose of producing value added
corn related products for its members. The cooperative produces corn starch,
syrup, gluten, fuel ethanol, and high fructose corn syrup.
Members are required to purchase units of equity participation based upon
the number of bushels for which they contract.
Liquid Sugars, Inc. (LSI), a wholly owned subsidiary, is a sweetener
blending and storage operation, which provides its products to various types of
customers (including food processors) located in the Western United States and
Southwestern Canada. As a result of MCP's 100% ownership of LSI, the accounts
and transactions of LSI are consolidated in these financial statements.
Grower Procurement Agency (GPA), an agency of the members of MCP, was
formed to assemble, procure, and supply corn to MCP on behalf of its membership.
The Board of Directors consists of employees of MCP, and it leases facilities
and employees from MCP. Because of the control which MCP has over the operations
of GPA, this entity is also being consolidated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCP, and its
wholly owned subsidiary, LSI, and its controlled entity, GPA. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The cooperative sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, etc.,
on terms it establishes for each customer. LSI sells its products to food
processors and others on terms it establishes for each customer. GPA only has
one customer, MCP. Credit sales are made throughout the United States and, to a
much lesser degree, in Canada, by MCP and its consolidated entities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the cooperative and its
subsidiary considers all highly liquid investments in debt instruments of other
entities, with a maturity date of less than three months at the date of
purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations, except
those of LSI, assume a first-in, first-out flow of goods. The inventory of LSI
is valued at the last-in, first-out flow of goods method.
HEDGE TRANSACTIONS
The cooperative generally follows a policy of managing its risk of future
grain price fluctuations by hedging in established commodities markets. As grain
is used in the production process, realized gains or
F-7
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
losses and option contract premiums on these positions are recognized. Marketing
gains or losses realized on grain prior to the delivery period for which they
are identified as protecting are deferred and recognized pro rata through the
identified delivery period.
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the Company, it is currently evaluating the reporting requirements
under this new standard.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other cooperatives is deducted from the
investment balance. The investments are not transferable. No cash is received
until such time as redeemed at the discretion of the other cooperative.
Patronage refunds and redemptions are recorded in the year received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The cooperative makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the cooperative will also match a portion of
employee contributions.
LSI makes payments under a defined contribution plan covering substantially
all eligible employees and makes contributions at a rate that is stipulated by
the plan. LSI also contributes to the pension funds for the union employees as
required by the respective union contracts. In addition, a portion of LSI's
employees is covered by a collective bargaining agreement.
DEFERRED COMPENSATION
LSI maintains non-qualified deferred compensation agreements with certain
of its employees. The present value of the future payments amounted to
$1,075,727, $1,013,232, and $983,360 at March 31, 1998, March 31, 1997, and
September 30, 1996, respectively. These amounts are based on estimated rates of
returns. Actual future payments could differ from these estimates. The increase
in future benefits attributable to interest is expensed yearly. Life insurance
contracts have been acquired covering the life of most of the employees covered
by the deferred compensation arrangements, with LSI being both the owner and the
beneficiary of the policies. The purpose of these life insurance policies is to
assist in payment of the deferred compensation obligations in the event of death
or retirement of the employee. The cash surrender value, amounting to $249,800,
$337,000, and $314,000 relating to these policies, is included as a non-current
asset in the balance sheets as of March 31, 1998, March 31, 1997, and September
30, 1996, respectively.
INCOME TAXES
The cooperative is subject to federal income tax, Minnesota franchise tax,
and Nebraska income tax and is permitted a deduction from taxable income for the
portion of the net proceeds refunded to
F-8
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
patrons in the form of qualified patronage refunds, if any, or value added
payments. In addition, any tax that may be due to the State of Nebraska will be
offset primarily by credits allowable under the Nebraska Employment and
Investment Growth Act.
LSI is subject to federal and numerous state income taxes as a tax paying
corporation. The entity is subject to state income taxes on a pro-rata basis in
most of these states.
GPA is a Minnesota corporation that is subject to taxation under the
provision of its organizing code section, but has a net operating loss
carryforward resulting in minimal federal or state income taxes for the year.
Consolidated tax returns are not being filed for federal income tax
purposes.
DEFERRED INCOME TAXES
Deferred income taxes arise from LSI from the difference in reported bases
of assets and liabilities for financial and tax accounting. Deferred taxes are
classified as current or non-current depending on the classification of the
asset and liabilities to which they relate.
The principal sources of differences are property and equipment
depreciation methods and non-deductible items, such as the allowance for
doubtful accounts, vacation pay accruals, and deferred compensation.
MCP distributes its proceeds and losses on a tax basis, which effectively
eliminates the requirement of recording deferred income taxes relating to timing
differences for this entity. Those timing differences are accounted for in the
unallocated capital reserve.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $383,786, $374,736, and $749,472 for the year ended
March 31, 1998, six months ended March 31, 1997, and year ended September 30,
1996, respectively. Accumulated amortization was $3,576,642, $3,192,856, and
$2,818,120 at March 31, 1998, March 31, 1997, and September 30, 1996,
respectively.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense was $295,282, $147,641, and
$147,641, respectively, for the year ended March 31, 1998, the six month fiscal
period ended March 31, 1997, and the year ended September 30, 1996. Accumulated
depreciation was $590,564 and $295,282 at March 31, 1998 and 1997, respectively.
Included in prepaid expenses are amounts of $3,788,324 and $3,200,000 at
March 31, 1998 and 1997, respectively, representing costs incurred by MCP in
connection with the construction of a railroad bridge in Columbus, Nebraska, to
encourage another rail company to serve that location. It is expected that the
freight savings will result in the recovery of the costs incurred over a
three-year period. Accordingly, these costs are being amortized on a
straight-line basis over a three-year period effective October 1, 1996.
Amortization expense amounted to $1,260,624 for the year ended March 31, 1998,
and $630,312 for the six month fiscal period ended March 31, 1997. Accumulated
amortization was $1,890,936 and $630,312 at March 31, 1998 and 1997,
respectively.
F-9
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense for the year was
$140,000.
CHANGE IN FISCAL YEAR
Minnesota Corn Processors, Liquid Sugars, Inc., and Grower Procurement
Agency all changed their fiscal years to a March 31 closing date, effective
October 1, 1996. Previously, these entities had a fiscal closing date of
September 30 for financial statement purposes.
This information is an integral part of the
accompanying consolidated financial statements.
F-10
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Notes receivable ........................................ $ 494,003 $ 360,317
Trade accounts .......................................... 51,061,695 41,127,112
Other - primarily tax refunds on capital expenditures and
ethanol production credits ............................. 3,940,352 5,408,845
Allowance for doubtful accounts ......................... (1,617,000) (497,000)
------------ -----------
TOTAL RECEIVABLES ....................................... $ 53,879,050 $46,399,274
============ ===========
Balance sheet classification:
Current assets ......................................... $ 53,229,357 $45,799,234
Non-current assets ..................................... 649,693 600,040
------------ -----------
TOTAL ................................................... $ 53,879,050 $46,399,274
============ ===========
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Corn ......................................................... $ 3,637,865 $ 3,157,109
Chemicals, supplies, and coal ................................ 5,583,811 6,414,285
Goods in process of manufacture .............................. 1,896,421 1,908,421
Finished goods ............................................... 14,231,261 16,121,819
Repair parts ................................................. 12,756,915 13,034,900
Liquid Sugars, Inc. - sweetener inventory - bulk and specialty
products .................................................... 4,490,963 4,049,302
Finished product in transit between Minnesota Corn Processors
locations and Liquid Sugars, Inc. locations ................. 1,221,718 1,075,584
----------- -----------
TOTAL INVENTORIES ............................................ $43,818,954 $45,761,420
=========== ===========
</TABLE>
The sweetener inventory maintained by LSI is valued on the basis of a
last-in, first-out flow of goods. Had the inventory been valued at current
average replacement cost, the inventory value would have been approximately
$315,512 and $956,234 higher than under the last-in, first-out method of
valuation for March 31, 1998 and 1997, respectively.
F-11
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 3 -- INVESTMENTS
Investments are nearly all in stock of the St. Paul Bank. The stock was
acquired under the terms of the cooperative's prior loan agreement with the
bank (Note 6) and through patronage refunds received from the bank.
NOTE 4 -- PROPERTY AND EQUIPMENT
The consolidated entity's investment in property and equipment is recorded
in the balance sheet at cost. The principal elements of the totals shown in the
balance sheet are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Land and public improvements .................... $ 5,624,778 $ 5,552,696
Land improvements ............................... 6,543,052 5,907,292
Buildings and leasehold improvements ............ 116,552,177 115,540,657
Equipment ....................................... 541,590,580 520,475,494
Railroad, switch engine, and rail cars .......... 1,960,902 2,029,235
Silos ........................................... 10,627,402 9,750,952
Construction in progress ........................ 2,738,488 13,760,123
------------ ------------
TOTAL PROPERTY AND EQUIPMENT .................... $685,637,379 $673,016,449
============ ============
</TABLE>
Depreciation expense was $42,366,307 for the year ended March 31, 1998,
$17,706,108 for the six month fiscal period ended March 31, 1997, and
$27,470,763 for the year ended September 30,1996.
NOTE 5 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Debentures payable ...................... $1,367,176 $1,681,527
Bank of the West ........................ 6,600,000 3,200,000
---------- ----------
TOTAL SHORT-TERM NOTES PAYABLE .......... $7,967,176 $4,881,527
========== ==========
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
The loan payable to Bank of the West is secured by a first priority lien on
all of LSI receivables, inventories, and equipment. The loan is due on September
30, 1998. Interest is payable monthly at an interest rate of prime plus .25%
(8.75% at March 31, 1998).
F-12
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 6 -- LONG-TERM DEBT AND PROPERTY PLEDGED
Long-term debt comprises the following elements:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
St. Paul Bank and RaboBank - bridge financing agreement
(construction) ....................................................... $ -- $183,233,513
St. Paul Bank - other term loan agreement (consolidated) .............. -- 94,300,000
St. Paul Bank - revolving note ........................................ -- 40,000,000
RaboBank - revolving credit agreement ................................. -- 30,000,000
Rabo Bank - term loan agreement ....................................... -- 50,000,000
Former stockholders of Liquid Sugars, Inc. ............................ -- 11,618,413
Loup River Public Power District ...................................... -- 21,729
B & B Procurement ..................................................... -- 29,614
Harris Trust and Savings Bank and FBS Ag Credit, Inc. -- outstanding on
$50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts are
secured by security agreements on inventories, accounts receivable, and
assignment of hedging account.
Interest at variable rates (6.81% at March 31, 1998). ................ 5,000,000 --
Private Placement Notes - Series A - repayment to be made at the
rate of $3,571,429 per year commencing September 1, 2001, with
final payment due September 1, 2007. Secured by real estate
mortgage. Interest payable semi-annually at 7.57% per annum. ......... 25,000,000 --
Private Placement Notes - Series B - repayment to be made at the
rate of $24,000,000 per year commencing September 1, 2005, with
final payment due September 1, 2009. Secured by real estate
mortgage. Interest payable semi-annually at 7.72% per annum. ......... 120,000,000 --
Private Placement Notes - Series C - repayment to be made at the
rate of $6,428,571 per year commencing September 1, 2006, with
final payment due September 1, 2012. Secured by real estate
mortgage. Interest payable semi-annually at 7.83% per annum. ......... 45,000,000 --
Private Placement Notes - Series D - repayment to be made at the
rate of $20,000,000 per year commencing September 1, 2003, with
final payment due September 1, 2007. Secured by real estate
mortgage. Interest payable at a variable rate (7.175% at March 31,
1998). ............................................................... $ 100,000,000 $ --
The Bank of the West loans are secured by all receivables,
inventories, and equipment of LSI Interest is payable at prime plus
0.75% and 0.50%. Repayment terms:
(A) $20,000 per month with final payment due September 30,
2000. Interest rate 9.25% at March 31, 1998. ........................ 600,000 840,000
(B) $10,000 per month with final payment due September 30, 1999.
Interest rate 9.25% at March 31, 1998. .............................. 180,000 300,000
(C) $20,000 per month with final payment due December 31, 2001.
Interest rate 8.75% at March 31, 1998. .............................. 880,000 --
------------- ------------
Total ................................................................ 296,660,000 410,343,269
Less current portion .................................................. 1,660,000 409,538,655
------------- ------------
LONG-TERM DEBT ........................................................ $ 295,000,000 $ 804,614
============= ============
</TABLE>
F-13
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 6 -- LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
Additionally there are loan covenants with respect to the Harris Trust and
Savings Bank, FBS Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000, maintain a current ratio
of 1.1 to 1, maintain minimum net working capital of $25,000,000, maintain
certain levels of cash flow, limit expenditures for capital expenditures, and
various other financial conditions. Additionally, Harris Trust & Savings Bank
and FSB Ag Credit, Inc. have a borrowing base limit on advances. The base
consists of portions of accounts receivable and inventories. At March 31, 1998,
the cooperative was in compliance with, or had obtained a waiver for, all loan
provisions.
The loan covenants with respect to the Bank of the West loans require that
LSI maintain, among other things, a net worth of $12,000,000, current assets of
1.1 times current liabilities, and total liabilities not to exceed three times
net worth. At March 31, 1998, the subsidiary was not in compliance with all loan
provisions and had not obtained a waiver from The Bank of the West. As a result,
the $1,660,000 in outstanding long-term debt at March 31, 1998, has been
classified as a current liability in the balance sheet as current portion of
long-term debt.
Subsequent to the original issuance of this report, Liquid Sugars, Inc.
refinanced the line of credit and all bank term loans that had previously been
with Bank of the West with a line of credit from Minnesota Corn Processors in
an aggregate amount of $15,000,000. The line of credit is due August 27, 2000.
Also, Liquid Sugars, Inc. subsequently and jointly with Minnesota Corn
Processors, entered into a secured revolving credit agreement with Harris Trust
and Savings Bank and U.S. Bancorp Ag Credit, Inc. in an aggregate amount of
$50,000,000. Liquid Sugars, Inc. and Minnesota Corn Processors are jointly and
severally liable for the entire amount of these loans.
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
March 31, 1999 ......... $ 1,660,000
March 31, 2000 ......... 5,000,000
March 31, 2001 ......... --
March 31, 2002 ......... 3,571,429
March 31, 2003 ......... 3,571,429
Thereafter ............. 282,857,142
------------
TOTAL .................. $296,660,000
============
</TABLE>
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the cooperative are leased. Payments
on such operating leases, recorded as an expense in the statements of
operations, totaled $10,914,552 for the year ended March 31, 1998, $5,333,862
for the six month fiscal period ended March 31, 1997, and $8,616,454 for the
year ended September 30, 1996. Noncancellable future minimum payments are
required on these leases as follows for the next five years:
<TABLE>
<S> <C>
1998/99 ............ $10,937,447
1999/2000 .......... 10,190,968
2000/2001 .......... 9,535,885
2001/2002 .......... 9,201,885
2002/2003 .......... 8,815,612
Thereafter ......... 59,101,067
</TABLE>
MCP is involved in various litigation at March 31, 1998. In the opinion of
management, the ultimate liability for such litigation would not have a material
adverse financial effect upon the company.
F-14
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Management further believes that all or part of any potential liability for
certain of these claims will be covered by insurance, and management is
vigorously defending all such claims against the cooperative.
MCP entered into a stock purchase agreement in which they will purchase a
7.5% ownership interest in a third party with an option to purchase an
additional 7.5% ownership interest.
It is expected that the total costs to complete the construction in
progress at March 31, 1998, for MCP will approximate $2,675,919.
In May, 1997, Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment ADM will
receive 30% of any future profits.
NOTE 8 -- MEMBER EQUITIES
The following is information pertinent to elements of patron equities:
<TABLE>
<CAPTION>
NON-VOTING
PREFERRED COMMON
STOCK STOCK
------------- -------------
<S> <C> <C>
Par value .............................. $ 50 $ 50
Shares authorized ...................... 100,000 100,000
Aggregate par value authorized ......... $5,000,000 $5,000,000
</TABLE>
Included in the member equities is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future value added or other
positive allocations, until the loss is repaid in full.
B. The loss represents a lien against the members' units of equity
participation, and should a member sell their units of equity
participation, the amount of the loss allocated to the members will be
deducted from such sale.
None of the cooperative's stock is transferable except as permitted by the
cooperative's board of directors. Because the cooperative's stock is not
transferable, the number of shares issued, redeemed, and outstanding are not
recorded in the financial statements.
At March 31, 1998, the number of voting units of equity participation
represented 137,077,665 bushel of corn contracts with members and the number of
non-voting units of equity participation represented 58,622,340 bushel of corn
contracts for a total of 195,700,005 total bushel of corn contracts with members
and non-members. The number of voting units of equity participation represented
136,785,461 bushels at March 31, 1997.
NOTE 9 -- INCOME TAXES
Net operating losses totaling approximately $69,237,000 are available to
reduce future taxable income for federal income tax purposes. The net operating
losses carryforward will begin to expire March 31, 2011, for federal income tax
purposes.
Separate federal and state income tax returns will be filed by the entities
included in the consolidated financial statements.
The difference between the income tax expense (benefit) and the federal
statutory rate is due to the effects of state income taxes, and the adjustment
of the prior year accrual.
F-15
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 9 -- INCOME TAXES (CONTINUED)
As of March 31, 1998 and 1997, deferred tax assets and liabilities consists
of the follows:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Deferred tax assets (non-current) ......................... $ (24,684,600) $ (423,400)
Deferred tax assets (current) ............................. (242,500) (15,116,900)
Valuation allowance for deferred tax assets ............... 23,700,000 14,886,000
------------- -------------
(1,227,100) (654,300)
============= =============
Deferred tax liabilities (non-current) .................... 1,639,100 2,007,500
Valuation allowance for deferred tax liabilities .......... -- (617,000)
------------- -------------
1,639,100 1,390,500
------------- -------------
NET DEFERRED TAXES ........................................ $ 412,000 $ 736,200
============= =============
</TABLE>
The net deferred tax liability is presented in the accompanying balance sheet
as follows:
<TABLE>
<S> <C> <C>
Non-current deferred tax liability ........................ $ 654,500 $ 967,100
Current deferred tax asset ................................ (242,500) (230,900)
------------- -------------
NET DEFERRED TAXES ........................................ $ 412,000 $ 736,200
============= =============
</TABLE>
The components of the net deferred tax liabilities at March 31, 1998, are
principally due to the differences between the book and tax basis in property
and equipment resulting from the use of accelerated depreciation for tax
purposes, and due to the differences in basis for deductions such as the
allowance for doubtful accounts, accrued vacation pay, deferred compensation,
and net operating loss carryforwards.
The components of income tax expense (benefit) are as follows:
<TABLE>
<S> <C>
Federal:
Current .................... $ 307,812
Deferred ................... (357,200)
----------
(49,388)
----------
State and local:
Current .................... 16,103
Deferred ................... 33,000
----------
49,103
----------
INCOME TAX BENEFIT ......... $ (285)
==========
</TABLE>
F-16
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 10 -- MARKETING OBLIGATIONS
Cash Grain Positions
The cooperative and GPA had open contracts to purchase 5,634,303 bushels of
cash corn as of March 31, 1998. MCP has open futures purchase contracts for
26,000,000 bushels as of March 31, 1998. Additionally, MCP has an outstanding
obligation on 3,445,504 bushels on deferred price contracts at March 31, 1998.
NOTE 11 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in other cooperatives, there are no quoted market
prices and a reasonable estimate of the fair value could not be made without
incurring excessive costs.
NOTE 12 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis amounted to
$93,720 for the year ended March 31, 1998, $51,675 for the six month fiscal
period ended March 31, 1997, and $129,262 for the year ended September 30, 1996.
NOTE 13 -- CONCENTRATIONS OF CREDIT RISK
The cooperative and its consolidated entities maintain cash and temporary
investments at various financial institutions. Balances on deposit are insured
by the Federal Deposit Insurance Corporation (FDIC) up to specified limits.
Balances in excess of FDIC limits are uninsured. Total cash and temporary
investments held by the financial institutions exceeded specified limits at
various dates throughout the fiscal year ended March 31, 1998.
NOTE 14 -- LOSS ON SALES CONTRACT
During the year ended March 31, 1998, an MCP customer exercised its
contract option to purchase additional corn sweeteners at a contract price that
was less than the current market price. This option was exercised after MCP had
committed its corn sweetener production to other customers. Because the customer
has a binding contract, MCP has agreed to subsidize this customer by purchasing
product on the open market and selling it to the customer at the reduced
contract price. This transaction will create an estimated loss of $7,986,000 and
is included in the statement of operations.
NOTE 15 -- EMPLOYMENT CONTRACTS
Liquid Sugars, Inc. has 25 employment contracts with employees, ranging
from five to eight years in length. Salary commitments under these contracts
total $9,733,469 as of March 31, 1998.
This information is an integral part of the
accompanying consolidated financial statements.
F-17
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 3,235,744
Receivables ...................................... 59,930,096
Inventories ...................................... 43,169,582
Prepaid expenses ................................. 4,054,026
Margin deposits .................................. 12,650,502
Option contract premiums ......................... --
Deferred income taxes ............................ 242,500
-------------
Total current assets ............................ 123,282,450
-------------
INVESTMENTS AND OTHER ASSETS
Investments in cooperatives ...................... 11,661,521
Deferred costs ................................... 1,091,306
Deferred debt refinancing costs .................. 3,349,949
Cash surrender value of life insurance ........... 137,383
Non-current receivables .......................... 2,321,826
Non-current prepaids ............................. 2,145,690
Goodwill ......................................... 3,691,022
-------------
Total investments and other assets .............. 24,398,697
-------------
PROPERTY AND EQUIPMENT ............................ 690,131,549
Less accumulated depreciation .................... 185,140,881
-------------
Net property, and equipment ..................... 504,990,668
-------------
TOTAL ASSETS ...................................... $ 652,671,815
=============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Short-term notes payable ......................... $ 1,228,858
Current portion of long-term debt ................ --
Accounts payable:
Producers ...................................... 3,815,322
Other .......................................... 22,740,937
Accrued expenses and taxes ..................... 18,936,138
-------------
Total current liabilities ...................... 46,721,255
-------------
LONG-TERM DEBT -- BANK AND DEBENTURE .............. 318,000,000
DEFERRED COMPENSATION ............................. 1,108,901
DEFERRED INCOME TAXES ............................. 1,639,100
-------------
Total long-term liabilities ..................... 320,748,001
-------------
Total liabilities ............................... 367,469,256
-------------
MEMBERS' EQUITY
Units of equity participation .................... 246,850,986
Contributed capital .............................. 1,007,789
Unallocated capital deficit ...................... (61,572,294)
Non-qualified distributions ...................... 3,849,171
Non-voting units of equity participation ......... 119,790,000
Loss to be allocated to members .................. (21,531,754)
Retained earnings ................................ (3,191,339)
-------------
Total members' equity ........................... 285,202,559
-------------
TOTAL LIABILITIES AND MEMBERS' EQUITY ............. $ 652,671,815
=============
</TABLE>
These are unaudited and for internal use only.
F-18
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- OPERATING STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------------- -----------------
<S> <C> <C>
NET SALES, STORAGE AND HANDLING CHARGES ................ $ 322,355,918 $ 292,912,222
COST OF GOODS .......................................... 290,357,141 276,109,753
------------- -------------
Gross proceeds ........................................ 31,998,777 16,802,469
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .......... 25,371,287 21,954,346
------------- -------------
Net operating proceeds (loss) ......................... 6,627,490 (5,151,877)
------------- -------------
INTEREST AND OTHER EXPENSE
Interest and expense .................................. (12,060,006) (20,116,594)
Interest and other income ............................. 599,091 494,499
Loss on the sale of property and equipment ............ (14,277) --
Patronage income received ............................. 3,713,699 1,802,012
------------- -------------
Total interest and other expense ..................... (7,761,493) (17,820,083)
------------- -------------
Net loss before income taxes ......................... (1,134,003) (22,971,960)
FEDERAL AND STATE INCOME TAXES ......................... 25,121 285,420
------------- -------------
NET LOSS ............................................... $ (1,159,124) $ (23,257,380)
============= =============
</TABLE>
These are unaudited and for internal use only.
F-19
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................... $ (1,159,124) $ (23,257,381)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization .................................. 23,022,908 22,471,540
Non-cash portion of patronage refunds received ................. (2,599,589) (1,261,407)
Deferred income taxes/compensation ............................. 33,174 2,875
Deferred debt refinancing costs ................................ -- (3,587,576)
Unrealized loss on foreign exchange ............................ 76,042 --
Gain on disposal of property and equipment ..................... 14,277 --
Changes in operating assets and liabilities:
Receivables ................................................... (6,587,043) (5,508,431)
Inventories ................................................... 649,372 5,563,584
Current portion of long-term debt ............................. -- (409,178,655)
Prepaids ...................................................... 1,477,003 615,522
Margin deposit account ........................................ (8,567,641) (1,386,618)
Accounts payable - producers .................................. (7,570,022) (5,830,829)
Accounts payable - other ...................................... (14,669,464) (6,861,767)
Short-term notes payable ...................................... (138,318) 8,528,987
Accrued expenses .............................................. 10,719,975 10,512,964
Income taxes recoverable/payable - current .................... -- 269,980
Option contract premiums ...................................... 1,457,280 --
------------- --------------
Net cash used by operating activities ........................ (3,841,170) (408,907,212)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment .............................. (4,654,259) (6,352,932)
Net increase in long-term receivables ............................ (1,672,133) (266,138)
Proceeds from termination of officer's life insurance policy ..... 112,417 --
Investments in Ice Ban ........................................... (48,087) --
Proceeds from disposal of equipment .............................. 5,950 --
------------- --------------
Net cash used from investing activities ......................... (6,256,112) (6,619,070)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings ............................................. 23,000,000 290,000,000
Principal payments on debt (LSI) ................................. (8,260,000) (24,614)
Deposit on railcars .............................................. (2,145,690) (180,000)
Loss allocation payments from members ............................ 2,782 4,968
Equities sold .................................................... (7,948) 119,790,000
------------- --------------
Net cash provided from financing activities ..................... 12,589,144 409,590,354
------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... 2,491,862 (5,935,928)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................... 743,882 7,059,433
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 3,235,744 $ 1,123,505
============= ==============
</TABLE>
These are unaudited and for internal use only.
F-20
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- MEMBER EQUITIES
SIX MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
UNITS OF EQUITY NON-VOTING
PARTICIPATION UNITS OF EQUITY CONTRIBUTED
CERTIFICATES PARTICIPATION CAPITAL
----------------- ----------------- -------------
<S> <C> <C> <C>
BALANCE, APRIL 1, 1998 .......... $246,858,933 $119,790,000 $1,007,789
Net loss for the year ended
March 31, 1998 ................ -- -- --
Equities repurchased ........... (7,948) -- --
Loss allocation:
Payment by members ............ -- -- --
------------ ------------ ----------
BALANCE, SEPTEMBER 30, 1998 ..... $246,850,985 $119,790,000 $1,007,789
============ ============ ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
UNALLOCATED
CAPITAL NON-QUALIFIED LOSS RETAINED
RESERVE PATRONAGE ALLOCATED TO EARNINGS
(DEFICIT) REFUNDS MEMBERS (DEFICIT) TOTAL
----------------- --------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1998 .......... $ (63,177,920) $3,849,171 $ (21,534,536) $ (426,589) $286,366,848
Net loss for the year ended
March 31, 1998 ................ (1,159,124) -- -- -- (1,159,124)
Equities repurchased ........... -- -- -- -- (7,948)
Loss allocation:
Payment by members ............ -- -- 2,782 -- 2,782
------------- ---------- ------------- ---------- ------------
BALANCE, SEPTEMBER 30, 1998 ..... $ (64,337,044) $3,849,171 $ (21,531,754) $ (426,589) $285,202,558
============= ========== ============= ========== ============
</TABLE>
F-21
These are unaudited and for internal use only.
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
Minnesota Corn Processors ("the cooperative") (MCP) is a member owned
cooperative incorporated in Minnesota for the purpose of producing value added
corn related products for its members. The cooperative produces corn starch,
syrup, gluten, fuel ethanol, and high fructose corn syrup.
Members are required to purchase units of equity participation based upon
the number of bushels for which they contract.
Liquid Sugars, Inc. (LSI), a wholly owned subsidiary, is a sweetener
blending and storage operation, which provides its products to various types of
customers (including food processors) located in the Western United States and
Southwestern Canada. As a result of MCP's 100% ownership of LSI, the accounts
and transactions of LSI are consolidated in these financial statements.
Grower Procurement Agency (GPA), an agency of the members of MCP, was
formed to assemble, procure, and supply corn to MCP on behalf of its membership.
The Board of Directors consists of employees of MCP, and it leases facilities
and employees from MCP. Because of the control which MCP has over the operations
of GPA, this entity is also being consolidated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCP, and its
wholly owned subsidiary, LSI, and its controlled entity, GPA. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The cooperative sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, etc.,
on terms it establishes for each customer. LSI sells its products to food
processors and others on terms it establishes for each customer. GPA only has
one customer, MCP. Credit sales are made throughout the United States and, to a
much lesser degree, in Canada, by MCP and its consolidated entities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the cooperative and its
subsidiary considers all highly liquid investments in debt instruments of other
entities, with a maturity date of less than three months at the date of
purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations, except
those of LSI, assume a first-in, first-out flow of goods. The inventory of LSI
is valued at the last-in, first-out flow of goods method.
HEDGE TRANSACTIONS
The company generally follows a policy of managing its risk of future grain
price fluctuations by hedging in established commodities markets. As grain is
used in the production process, realized gains or
F-22
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
losses and option contract premiums on these positions are recognized. Marketing
gains or losses realized on grain prior to the delivery period for which they
are identified as protecting are deferred and recognized pro rata through the
identified delivery period.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other cooperatives is deducted from the
investment balance. The investments are not transferable. No cash is received
until such time as redeemed at the discretion of the other cooperative.
Patronage refunds and redemptions are recorded in the year received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The cooperative makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the cooperative also matches a portion of employee
contributions.
LSI makes payments under a defined contribution plan covering substantially
all eligible employees and makes contributions at a rate that is stipulated by
the plan. LSI also contributes to the pension funds for the union employees as
required by the respective union contracts. In addition a portion of LSI's
employees are covered by a collective bargaining agreement.
DEFERRED COMPENSATION
LSI maintains non-qualified deferred compensation agreements with certain
of its employees. The present value of the future payments amounted to
$1,108,901 at September 30, 1998. This amount is based on estimated rates of
returns. Actual future payments could differ from these estimates. The increase
in future benefits attributable to interest is expensed yearly. Life insurance
contracts have been acquired covering the life of most of the employees covered
by the deferred compensation arrangements, with LSI being both the owner and the
beneficiary of the policies. The purpose of these life insurance policies is to
assist in payment of the deferred compensation obligations in the event of death
or retirement of the employee. The cash surrender value, amounting to $137,383
relating to these policies, is included as a non-current asset in the balance
sheet as of September 30, 1998.
INCOME TAXES
The cooperative is subject to federal income tax, Minnesota franchise tax,
and Nebraska income tax and is permitted a deduction from taxable income for the
portion of the net proceeds refunded to patrons in the form of qualified
patronage refunds, if any, or value added payments. In addition, any tax that
may be due to the State of Nebraska will be offset primarily by credits
allowable under the Nebraska Employment and Investment Growth Act.
F-23
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
LSI is subject to federal and numerous state income taxes as a tax paying
corporation. The entity is subject to state income taxes on a pro-rata basis in
most of these states.
GPA is a Minnesota corporation that is subject to taxation under the
provision of its organizing code section, but has a net operating loss
carryforward resulting in minimal federal or state income taxes for the year.
Consolidated tax returns are not being filed for federal income tax
purposes.
DEFERRED INCOME TAXES
Deferred income taxes arise from LSI from the difference in reported bases
of assets and liabilities for financial and tax accounting. Deferred taxes are
classified as current or non-current depending on the classification of the
asset and liabilities to which they relate.
The principal sources of differences are property and equipment
depreciation methods and non-deductible items, such as the allowance for
doubtful accounts, vacation pay accruals, and deferred compensation.
MCP distributes its proceeds and losses on a tax basis, which effectively
eliminates the requirement of recording deferred income taxes relating to timing
differences for this entity. Those timing differences are accounted for in the
unallocated capital reserve.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $64,026 an $319,760 for the six month periods ended
September 30, 1998 and 1997, respectively. Accumulated amortization was
$3,640,668 at September 30, 1998.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense for the six month periods ended
September 30, 1998 and 1997 was $147,641, each. Accumulated amortization was
$738,205 at September 30, 1998.
Included in prepaid expenses is an amount of $3,788,324 representing costs
incurred by MCP in connection with the construction of a railroad bridge in
Columbus, Nebraska, to encourage another rail company to serve that location. It
is expected that the freight savings will result in the recovery of the costs
incurred over a three-year period. Accordingly, these costs are being amortized
on a straight-line basis over a three-year period effective October 1, 1996.
Amortization expense amounted to $630,312 and $624,624 for the six month periods
ended September 30, 1998 and 1997, respectively. Accumulated amortization was
$2,521,248 at September 30, 1998.
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense was $120,000 and
$20,000 for the six month periods ended September 30, 1998 and 1997,
respectively.
F-24
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- Accounting for Derivative Instruments and Hedging
Activities to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the company, it is currently, evaluating the reporting requirements
under this new standard.
This information is an integral part of the
accompanying consolidated financial statements.
F-25
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<CAPTION>
09/30/98
---------------
<S> <C>
Notes receivable ........................................................... $ 2,091,217
Trade accounts ............................................................. 57,040,478
Other - primarily tax refunds on capital expenditures and ethanol production
credits ................................................................... 5,204,953
Allowance for doubtful accounts ............................................ (2,194,320)
------------
TOTAL RECEIVABLES .......................................................... $ 62,142,328
============
Balance sheet classification:
Current assets ............................................................ $ 59,820,502
Non-current assets ........................................................ 2,321,826
------------
TOTAL ...................................................................... $ 62,142,328
============
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<CAPTION>
09/30/98
-------------
<S> <C>
Corn ................................................................... $ 2,424,860
Chemicals, supplies, and coal .......................................... 5,848,868
Goods in process of manufacture ........................................ 1,975,183
Finished goods ......................................................... 18,018,055
Repair parts ........................................................... 12,262,903
Liquid Sugars, Inc. - sweetener inventory - bulk and specialty products 2,639,713
-----------
TOTAL INVENTORIES ...................................................... $43,169,582
===========
</TABLE>
The sweetener inventory maintained by LSI is valued on the basis of a
last-in, first-out flow of goods. Had the inventory been valued at current
average replacement cost, the inventory value would have been approximately
$869,507 higher than under the last-in, first-out method of valuation for
September 30, 1998.
F-26
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 -- PROPERTY AND EQUIPMENT
The consolidated entity's investment in property and equipment is recorded
in the balance sheet at cost. The principal elements of the totals shown in the
balance sheet are as follows:
<TABLE>
<CAPTION>
09/30/98
---------------
<S> <C>
Land and public improvements .................... $ 5,625,430
Land improvements ............................... 6,814,373
Buildings and leasehold improvements ............ 117,233,100
Equipment ....................................... 541,759,604
Railroad, switch engine, and rail cars .......... 1,960,902
Silos ........................................... 10,627,402
Construction in progress ........................ 6,110,738
------------
TOTAL PROPERTY AND EQUIPMENT .................... $690,131,549
============
</TABLE>
Depreciation expense was $22,070,853 and $21,984,139 for the six month
periods ended September 30, 1998 and 1997, respectively.
NOTE 4 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<CAPTION>
09/30/98
-------------
<S> <C>
Debentures payable .......... $1,228,858
==========
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
F-27
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED
<TABLE>
<CAPTION>
09/30/98
--------------
<S> <C>
Harris Trust and Savings Bank and FBS Ag Credit, Inc. - outstanding on
$50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts are
secured by security agreements on inventories, accounts receivable, and
assignment of hedging account. Interest at variable rates (6.81% at September 30,
1998) ............................................................................. $ 28,000,000
Private Placement Notes - Series A - repayment to be made at the rate of
$3,571,429 per year commencing September 1, 2001, with final payment due
September 1, 2007. Secured by real estate mortgage. Interest payable
semi-annually at 7.57% per annum. ................................................. 25,000,000
Private Placement Notes - Series B - repayment to be made at the rate of
$24,000,000 per year commencing September 1, 2005, with final payment due
September 1, 2009. Secured by real estate mortgage. Interest payable
semi-annually at 7.72% per annum. ................................................. 120,000,000
Private Placement Notes - Series C - repayment to be made at the rate of
$6,428,571 per year commencing September 1, 2006, with final payment due
September 1, 2012. Secured by real estate mortgage. Interest payable
semi-annually at 7.83% per annum. ................................................. 45,000,000
Private Placement Notes - Series D - repayment to be made at the rate of
$20,000,000 per year commencing September 1, 2003, with final payment due
September 1, 2007. Secured by real estate mortgage. Interest payable at a
variable rate (6.925% at September 30, 1998) ...................................... 100,000,000
------------
Total ............................................................................. $318,000,000
Less current portion ............................................................... --
------------
LONG-TERM DEBT ..................................................................... $318,000,000
============
</TABLE>
There are loan covenants with respect to the Harris Trust and Savings Bank,
US Bancorp Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000; maintain a current ratio
of 1.1 to 1; maintain minimum net working capital of $25,000,000; maintain
certain levels of cash flow; limit capital expenditures; and various other
financial conditions. Additionally, Harris Trust & Savings Bank and US Bancorp
Ag Credit, Inc. have a borrowing base limit on advances. The base consists of
portions of accounts receivable and inventories.
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
September 30, 1999 ......... $ --
September 30, 2000 ......... 28,000,000
September 30, 2001 ......... 3,571,429
September 30, 2002 ......... 3,571,429
September 30, 2003 ......... 23,571,429
Thereafter ................. 259,285,713
------------
TOTAL ...................... $318,000,000
============
</TABLE>
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the cooperative are leased. For the
six month periods ended September 30, 1998 and 1997, payments on such operating
leases, recorded as expense in the
F-28
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
statement of operations, totaled $6,841,701 and $5,189,374. Noncancellable
future minimum payments are required on these leases as follows for the next
five years:
<TABLE>
<S> <C>
1999/2000 .......... $13,743,513
2000/2001 .......... 13,226,719
2001/2002 .......... 12,596,479
2002/2003 .......... 12,041,905
2003/2004 .......... 11,739,118
Thereafter ......... 57,972,025
</TABLE>
MCP is involved in various litigation at September 30, 1998. In the opinion
of management, the ultimate liability for such litigation would not have a
material adverse financial effect upon the company. Management further believes
that all or part of any potential liability for certain of these claims will be
covered by insurance, and management is vigorously defending all such claims
against the cooperative.
It is expected that the total cost to complete the construction in progress
at September 30, 1998, for MCP will approximate $4,000,000.
LSI has 25 employment contracts with employees, ranging from five to eight
years in length. Salary commitments under these contracts total approximately
$8,652,000 at September 30, 1998.
NOTE 7 -- MEMBER EQUITIES
The following is information pertinent to elements of patron equities:
<TABLE>
<CAPTION>
NON-VOTING
PREFERRED COMMON
STOCK STOCK
------------- -------------
<S> <C> <C>
Par value .............................. $ 50 $ 50
Shares authorized ...................... 100,000 100,000
Aggregate par value authorized ......... $5,000,000 $5,000,000
</TABLE>
Included in the member equities is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future value added or other
positive allocations, until the loss is repaid in full.
B. The loss represents a lien against the members' units of equity
participation, and should a member sell their units of equity
participation, the amount of the loss allocated to the members will be
deducted from such sale.
None of the cooperative's stock is transferable except as permitted by the
cooperative's board of directors. Because the cooperative's stock is not
transferable, the number of shares issued, redeemed, and outstanding are not
recorded in the financial statements.
In May 1997 Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment, ADM will
receive 30% of any future profits.
At September 30, 1998, the number of voting units of equity participation
represented 137,073,691 bushel of corn contracts with members and the number of
non-voting units of equity participation represented 58,622,340 bushel of corn
contracts for a total of 195,696,031 total bushel of corn contracts with members
and non-members.
F-29
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 -- INCOME TAXES
Net operating losses totaling approximately $69,237,000 are available to
reduce future taxable income for federal income tax purposes. The net operating
losses carryforward will begin to expire March 31, 2011, for federal income tax
purposes.
Separate federal and state income tax returns will be filed by the entities
included in the consolidated financial statements.
The difference between the income tax expense (benefit) and the federal
statutory rate is due to the effects of state income taxes, and the adjustment
of the prior year accrual.
As of September 30, 1998, deferred tax assets and liabilities consists of
the follows:
<TABLE>
<CAPTION>
09/30/98
-----------------
<S> <C>
Deferred tax assets (non-current) ......................... $ (24,684,600)
Deferred tax assets (current) ............................. (242,500)
Valuation allowance for deferred tax assets ............... 23,700,000
-------------
(1,227,100)
-------------
Deferred tax liabilities (non-current) .................... 1,639,100
Valuation allowance for deferred tax liabilities .......... --
-------------
1,639,100
-------------
NET DEFERRED TAXES ........................................ $ 412,000
=============
</TABLE>
The net deferred tax liability is presented in the accompanying balance
sheet as follows:
<TABLE>
<S> <C>
Non-current deferred tax liability ......... $ 654,500
Current deferred tax asset ................. (242,500)
----------
NET DEFERRED TAXES ......................... $ 412,000
==========
</TABLE>
The components of the net deferred tax liabilities at September 30, 1998,
are principally due to the differences between the book and tax basis in
property and equipment resulting from the use of accelerated depreciation for
tax purposes, and due to the differences in basis for deductions such as the
allowance for doubtful accounts, accrued vacation pay, deferred compensation,
and net operating loss carryforwards.
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current:
Federal ................... $14,063
State ..................... 11,058
-------
INCOME TAX EXPENSE ......... $25,121
=======
</TABLE>
F-30
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 -- MARKETING OBLIGATIONS
Cash Grain Positions
The cooperative and GPA had open contracts to purchase 8,770,471 bushels of
cash corn as of September 30, 1998. MCP has open futures purchase contracts for
47,715,000 bushels as of September 30, 1998. Additionally, MCP has an
outstanding obligation on 1,002,833 bushels on deferred price contracts at
September 30, 1998.
NOTE 10 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in other cooperatives, there are no quoted market
prices and a reasonable estimate of the fair value could not be made without
incurring excessive costs.
NOTE 11 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis amounted to
$258,845 and $150,000 for the six month periods ended September 30, 1998 and
1997, respectively.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
The cooperative maintains cash and temporary investments at various
financial institutions. Balances on deposit are insured by the Federal Deposit
Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC
limits are uninsured. Total cash and temporary investments held by the financial
institutions exceeded specified limits at various dates throughout the fiscal
year ended September 30, 1998.
This information is an integral part of the
accompanying consolidated financial statements.
F-31
<PAGE>
APPENDIX A
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS, INC (the "Cooperative") and MINNESOTA
CORN PROCESSORS COLORADO ("MCP Colorado"), each of which may be referred to
herein as a "Constituent Cooperative" and both of which may be collectively
referred to herein as the "Constituent Cooperatives."
WHEREAS, the Cooperative is a cooperative association organized under
Chapter 308A of Minnesota Statutes, as amended (the "Minnesota Act"); and MCP
Colorado is a cooperative association organized under Title 7 Article 56 of the
Colorado Revised Statutes, as amended (the "Colorado Act"), and is a wholly
owned subsidiary of the Cooperative. The Minnesota Act and the Colorado Act may
be referred to herein collectively as the "Acts."
WHEREAS, the respective Boards of Directors of the Cooperative and MCP
Colorado and the respective members of the Cooperative and MCP Colorado each has
approved and adopted this Plan and the transactions contemplated hereby in the
manner required by their respective Articles of Incorporation and Bylaws, and
the appropriate sections of the Acts.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), the
Cooperative and MCP Colorado shall combine through merger (the "MCP Merger") in
accordance with the applicable provisions of the Acts; and MCP Colorado shall be
the surviving cooperative and shall continue to exist as a Colorado cooperative
association by virtue of, and shall be governed by, the Colorado Act.
SECTION 2. ARTICLES OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the MCP Merger,
the articles of merger (the "Articles of Merger") and a statement of merger
("Statement of Merger") shall be executed in compliance with Section 308A.801 of
the Minnesota Act and Section 7-56-605 of the Colorado Act, respectively. The
Articles of Merger shall be filed with the Secretary of State of the State of
Minnesota and the Statement of Merger shall be filed with the Secretary of State
of the State of Colorado, or as otherwise required by the Acts.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members: (a) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
have all of the rights, privileges, immunities and powers, and shall be subject
to all the duties and liabilities, of a cooperative organized under the Colorado
Act; (b) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
possess all of the rights, privileges, immunities and franchises, of a public as
well as a private nature, of each Constituent Cooperative, and all property,
real, personal and mixed, and all debts due on whatever account, including all
choses in action, and each and every other interest of or belonging to or due to
each Constituent Cooperative, shall be deemed to be and hereby is vested in MCP
Colorado, without further act or deed, and the title to any property, or any
interest therein, vested in either Constituent Cooperative, shall not revert or
be in any way impaired by reason of the MCP Merger; (c) MCP Colorado shall be
responsible and liable for all of the liabilities and obligations of each
Constituent Cooperative, and any claim existing or action or proceeding pending
by or against one of the Constituent Cooperatives may be prosecuted as if the
MCP Merger had not taken place or MCP Colorado may be substituted in its place;
(d) neither the rights of creditors nor any liens upon the property of either of
the Constituent Cooperatives shall be impaired by the MCP Merger; and (e) the
MCP Merger shall have any other effect set forth in the Acts and the Transaction
Agreement dated January ___, 1999 between the Cooperative, MCP Colorado and
Minnesota Corn Processors, LLC (the "Transaction Agreement"); all with the
effect and to the extent provided in the applicable provisions of the Acts.
A-1
<PAGE>
SECTION 4. ARTICLES OF INCORPORATION AND BYLAWS. From and after the
Effective Time, pursuant to the Articles of Merger and without any further
action by the Constituent Cooperatives or any of their respective members, the
Articles of Incorporation of MCP Colorado in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of MCP Colorado, as the
surviving cooperative in the MCP Merger (the "Surviving Entity Articles"). From
and after the Effective Time, without any further action by the Constituent
Cooperatives or any of their respective members, the Bylaws of MCP Colorado in
effect immediately prior to the Effective Time shall be the Bylaws of MCP
Colorado, as the surviving cooperative in the MCP Merger (the "Surviving Entity
Bylaws"). A copy of the Surviving Entity Articles of Incorporation and Bylaws
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the MCP Merger.
SECTION 5. BOARD OF DIRECTORS AND OFFICERS. From and after the Effective
Time, without any further action by the Constituent Cooperatives or any of their
respective members, each person serving as a director or an officer of the
Cooperative immediately prior to the Effective Time shall become a director or
an officer of MCP Colorado, as the surviving cooperative in the MCP Merger, (in
the case of officers, holding the same office in MCP Colorado as they held in
the Cooperative immediately prior to the Effective Time) to serve in accordance
with the Surviving Entity Bylaws. The initial directors and officers of MCP
Colorado prior to the effective date shall resign their positions as directors
and officers of MCP Colorado as of the effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION AND CONTINUATION OF
CAPITAL STOCK, NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On
the Effective Time, the manner and basis of exchanging and continuing the shares
of capital stock, non-stock equity interests, units of equity participation,
non-voting units of equity participation, patronage equity interests (including
all entitlements to patronage refunds), any other allocated equity interests,
and unallocated and capital reserves of the Cooperative and MCP Colorado (all
such interests referred to herein as "Cooperative Equity Interests" or "MCP
Colorado Equity Interests", respectively), and membership interests in the
Cooperative and MCP Colorado, for equal Equity Interests and membership
interests in MCP Colorado, shall be as follows:
(a) EXCHANGE AND CONTINUATION OF COOPERATIVE MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, each holder of common stock of the
Cooperative shall become and be a member of MCP Colorado, to the extent they
are eligible for membership under the Surviving Entity Articles and the
Surviving Entity Bylaws, in such class and with such incidents of membership
as are set forth in the Surviving Entity Articles and the Surviving Entity
Bylaws.
(b) MCP COLORADO MEMBERSHIPS. As of the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members, the Cooperative, as the sole member of MCP Colorado, shall cease to
exist by operation of the merger and shall cease to be a member of MCP
Colorado.
(c) EXCHANGE AND CONTINUATION OF COOPERATIVE EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, all Equity Interests standing on the
books of the Cooperative immediately prior to the Effective Time shall be
determined and exchanged for equal Equity Interests in MCP Colorado at its
stated dollar amount on a dollar-for-dollar basis, including as follows:
i. Common Stock. Each share of common stock of the Cooperative issued
and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall be exchanged for one (1) share of Common
Stock of MCP Colorado at a par value of $50.00 per share.
ii. Preferred Stock. Each share of Preferred stock of the Cooperative
issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one (1) share of
Preferred Stock of MCP Colorado at a par value of $50.00 per share.
iii. Patronage Equity Interests and Units of Equity Participation. All
patronage refunds (qualified and nonqualified), units of equity
participation and non-voting units of equity
A-2
<PAGE>
participation and any other allocated or to be allocated patronage
equity interests (including all entitlements thereto) standing on the
books of the Cooperative immediately prior to the Effective Time
(which are not otherwise evidenced by capital stock) shall be
exchanged for equal patronage refunds, units of equity participation
and non-voting units of equity participation, and allocated or to be
allocated equity interests, entitlements to patronage refunds, or
other equal patronage equity interests on the books of MCP Colorado,
at their stated dollar amount on a dollar-for-dollar basis, and in
such denominations or other designations or series so as to preserve
the year of issue (as MCP Colorado deems necessary) and other terms
and conditions of the original issuance; and each unit of equity
participation so exchanged shall be subject on the books of MCP
Colorado to the same obligation for loss allocation as standing on
the books of the Cooperative immediately prior to the Effective Time.
iv. Deferred Patronage and Unallocated Reserve. All deferred patronage
(not exchanged above), unallocated reserves, and any other
unallocated equity interests standing on the books of the Cooperative
immediately prior to the Effective Time shall be exchanged and
credited for equal deferred patronage, unallocated reserves or other
equal unallocated equity interests on the books of MCP Colorado, at
their stated dollar amount on a dollar-for-dollar basis, and in such
denominations or other designations or series so as to preserve the
year of issue (if applicable and as MCP Colorado deems necessary) and
other terms and conditions of the original issuance (if applicable).
v. Net Effect. The net effect of the exchange of Cooperative Equity
Interests for equal Equity Interests in MCP Colorado shall be that
the holders of Cooperative Equity Interests standing on the books of
the Cooperative immediately prior to the Effective Time shall hold
and will have equal Equity Interests in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis, year of issue (as determined necessary),
loss allocation obligations and any other rights and preferences, and
that the deferred patronage, unallocated reserves and other
unallocated Equity Interests of the Cooperative, as standing on its
books immediately prior to the Effective Time, shall be exchanged and
credited for an equal Equity Interest in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis and other rights and preferences.
(d) MCP COLORADO EQUITY INTERESTS. Prior to the Effective Time, the
Cooperative is the sole member of MCP Colorado and all equity interest of
any and every nature in MCP Colorado is owned by and held in the name of the
Cooperative. Upon the Effective Time, the Cooperative, as the merging
entity, shall merge with and into MCP Colorado and shall cease to exist in
its own right. All Equity Interests of any and every nature standing on the
books of MCP Colorado and held by the Cooperative immediately prior to the
Effective Time shall be cancelled.
(e) SURVIVING ENTITY ARTICLES AND BYLAWS TO GOVERN. Membership in MCP
Colorado and all Equity Interests in MCP Colorado whether issued or credited
in exchange for Cooperative Equity Interests or continued with respect to
MCP Colorado Equity Interests as described above, shall in all instances be
governed by the provisions of the Surviving Entity Articles and the
Surviving Entity Bylaws.
(f) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of Cooperative
Equity Interests and each holder of MCP Colorado Equity Interests shall take
such action or cause to be taken such action as MCP Colorado may reasonably
deem necessary or appropriate to effect the exchange and continuation of the
equity interests hereunder, including without limitation the execution and
delivery of any stock certificates or other evidences of equity being
exchanged or continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by MCP Colorado, or its successors or assigns, the
Cooperative shall execute and deliver or cause to be executed and delivered all
such deeds and other instruments, and shall take or cause to be taken all such
further action or actions, as MCP Colorado, or its successors or assigns, may
deem
A-3
<PAGE>
necessary or desirable in order to vest in and confirm to MCP Colorado, or its
successors or assigns, title to and possession of all of the properties, rights,
privileges, powers and franchises referred to in Section 3 of this Plan, and
otherwise to carry out the intent and purposes of this Plan. If MCP Colorado
shall at any time deem that any further assignments or assurances or any other
acts are necessary or desirable to vest, perfect or confirm of record or
otherwise the title to any property or to enforce any claims of the Cooperative
or MCP Colorado vested in MCP Colorado pursuant to this Plan, the officers of
MCP Colorado or its successors or assigns, are hereby specifically authorized as
attorneys-in-fact of each the Cooperative and MCP Colorado (which appointment is
irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each the Cooperative and MCP Colorado, or otherwise, as such
officer shall deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE TIME. The MCP Merger shall become effective at the
later of the filing of the Articles of Merger with the Secretary of State of
Minnesota and the filing of the Statement of Merger with the Secretary of State
of Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of the Cooperative and MCP Colorado, as of the date
first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
A-4
<PAGE>
APPENDIX B
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS COLORADO, ("MCP Colorado") and MINNESOTA
CORN PROCESSORS, LLC ("LLC"), each of which may be referred to herein as a
"Constituent Entity" and both of which may be collectively referred to herein as
the "Constituent Entities".
WHEREAS, MCP Colorado is a cooperative association organized under Title 7,
Article 56 of the Colorado Revised Statutes as amended (the "Colorado Act"), and
LLC is a limited liability company organized under Title 7 Article 80 of the
Colorado Revised Statutes as amended (the "LLC Act"), and a wholly owned
subsidiary of MCP Colorado as a result of a merger of Minnesota Corn Processors,
Inc., a Minnesota cooperative association (the "Cooperative"), with and into MCP
Colorado, effective on the date hereof. The LLC Act and the Colorado Act may be
referred to herein collectively as the "Acts"; and
WHEREAS, the Board of Directors and members of MCP Colorado have approved
and adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Incorporation and Bylaws, the Colorado Act and other
applicable provisions of Colorado law including specifically the Colorado
Corporations and Associations Act found at Title 7, Article 90 of the Colorado
Revised Statues ("CCA Act"); and
WHEREAS, the Board of Directors and members of LLC have approved and
adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Organization and Operating Agreement, the LLC Act
and the CCA Act; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), MCP
Colorado and LLC shall combine through merger (the "LLC Merger") in accordance
with the applicable provisions of the Acts and the CCA Act, and LLC shall be the
surviving entity and shall continue to exist as a Colorado limited liability
company with principal offices at 901 North Highway 59, Marshall, MN 56258-2744,
by virtue of, and shall be governed by, the LLC Act.
SECTION 2. STATEMENT OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the LLC Merger,
a statement of merger (the "Statement of Merger") shall be executed in
accordance with all legal requirements. The Statement of Merger shall be filed
with the Secretary of State of the State of Colorado or as otherwise required by
law.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Entities or any of their respective members:
(A) LLC, as the surviving entity in the LLC Merger, shall have all of the
rights, privileges, immunities and powers, and shall be subject to all the
duties and liabilities, of a limited liability company organized under the LLC
Act; (B) LLC, as the surviving entity in the LLC Merger, shall possess all of
the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each Constituent Entity, and all property, real, personal and
mixed, and all debts due on whatever account, including all choses in action,
and each and every other interest of or belonging to or due to each Constituent
Entity, shall be deemed to be and hereby is vested in LLC, without further act
or deed, and the title to any property, or any interest therein, vested in
either Constituent Entity, shall not revert or be in any way impaired by reason
of the LLC Merger; (C) LLC shall be responsible and liable for all of the
liabilities and obligations of each Constituent Entity, and any claim existing
or action or proceeding pending by or against one of the Constituent Entities
may be prosecuted as if the LLC Merger had not taken place or LLC may be
substituted in its place; (D) neither the rights of creditors nor any liens upon
the property of either of the Constituent Entity shall be impaired by the LLC
Merger; and (E) the LLC Merger shall have any other effect set forth in the
Acts, the CCA Act, and the Transaction Agreement dated January __, 1999 between
the Cooperative, MCP
B-1
<PAGE>
Colorado and LLC (the "Transaction Agreement"); all with the effect and to the
extent provided in the applicable provisions of Colorado law.
SECTION 4. ARTICLES OF ORGANIZATION; OPERATING AGREEMENT. From and after
the Effective Time, pursuant to the Statement of Merger and without any further
action by the Constituent Entities or any of their respective members, the
Articles of Organization of LLC in effect immediately prior to the Effective
Time shall be the Articles of Organization of LLC, as the surviving entity in
the LLC Merger (the "Surviving Entity Articles"). From and after the Effective
Time, without any further action by the Constituent Entities or any of their
respective members, the Operating Agreement of LLC as in effect immediately
prior to the Effective Time shall be the Operating Agreement of LLC, as the
surviving entity in the LLC Merger (the "Surviving Entity Operating Agreement").
A copy of the Surviving Entity Articles of Organization and Operating Agreement
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the LLC Merger.
SECTION 5. BOARD OF DIRECTORS. From and after the Effective Time, without
any further action by the Constituent Cooperatives or any of their respective
members, each person serving as a director or an officer of MCP Colorado
immediately prior to the Effective Time shall be a director or an officer of
LLC, as the surviving entity in the LLC Merger, (in the case of officers,
holding the same office in LLC as they held in MCP Colorado immediately prior to
the Effective Time) to serve in accordance with the Surviving Entity Operating
Agreement. The initial directors and officers of LLC prior to the effective date
shall resign their positions as directors and officers of LLC as of the
effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION OF CAPITAL STOCK,
NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On the Effective
Time, the manner and basis of exchanging or converting the shares of capital
stock, non-stock equity interests, units of equity participation, non-voting
units of equity participation, patronage equity interests (including all
entitlements to patronage refunds), any other allocated equity interests, and
unallocated and capital reserves of MCP Colorado and LLC (all such interests
referred to herein as "MCP Colorado Equity Interests" or "LLC Equity Interests",
respectively), and membership interests in MCP Colorado and LLC, for
proportionally equivalent Equity Interests and equal membership interests in
LLC, shall be as follows:
(A) EXCHANGE AND CONTINUATION OF MCP COLORADO MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, (i) each member and holder of Units of
Participation of MCP Colorado shall become and be a Class A member of LLC,
to the extent they are eligible for membership under the Surviving Entity
Articles and the Surviving Entity Operating Agreement, and (ii) each holder
of non-voting Units of Participation of MCP Colorado shall become and be a
Class B member of LLC. Class A and Class B members shall have such incidents
of membership as are set forth in the Surviving Entity Articles and the
Surviving Entity Operating Agreement.
(B) LLC MEMBERSHIP. As of the Effective Time, without any further action
by the Constituent Entities or any of their respective members, MCP
Colorado, as the sole member of LLC, shall cease to exist by operation of
the merger and shall also cease to be a member of LLC.
(C) EXCHANGE AND CONTINUATION OF MCP COLORADO EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, all MCP Colorado Equity Interests standing
on the books of` MCP Colorado immediately after the consummation of the
merger of The Cooperative with and into MCP Colorado, and immediately prior
to the Effective Time shall be determined and exchanged for proportionally
equivalent Equity Interests in LLC as follows:
I. VOTING UNITS OF EQUITY PARTICIPATION. Each voting unit of equity
participation standing on the books of MCP Colorado and held by
members of MCP Colorado ("Member Equity") immediately prior to the
Effective Time shall cease to be outstanding and shall be exchanged
for one Class A Unit of LLC; and each Class A Unit of LLC so
exchanged shall be subject on the books of LLC to the same
obligation for loss allocation as standing on the books of MCP
Colorado immediately prior to the Effective Time.
II. NON-VOTING UNITS OF EQUITY PARTICIPATION. Each non-voting unit of
equity participation standing on the books of MCP Colorado and held
by non-members of MCP Colorado
B-2
<PAGE>
("Non-Member Equity") immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one Class B Unit
of LLC.
III. COMMON STOCK. All shares of common stock standing on the books of
MCP Colorado immediately prior to the Effective Time shall be
cancelled and shall cease to exist.
IV. NONQUALIFIED PATRONAGE REFUNDS. All nonqualified patronage refunds
standing on the books of MCP Colorado immediately prior to the
Effective Time shall be converted into nonvoting financial interests
of LLC having the same stated dollar amount, years of issue (as LLC
deems necessary) and other terms and conditions as applicable to
such nonqualified patronage refunds immediately prior to the
Effective Time.
(D) LLC EQUITY INTERESTS. Prior to the Effective Time, MCP Colorado is
the sole member of LLC and all equity interest of any and every nature in
LLC is owned by and held in the name of MCP Colorado. Upon the Effective
Time, MCP Colorado, as the merging entity, shall merge with and into LLC and
shall cease to exist in its own right. All Equity Interests of any and every
nature standing on the books of LLC immediately prior to the Effective Time
shall be cancelled.
(E) SURVIVING ENTITY ARTICLES AND OPERATING AGREEMENT TO GOVERN.
Membership in LLC and all Equity Interests in LLC issued or credited in
exchange for MCP Colorado Equity Interests and continued with respect to LLC
Equity as described above, shall in all instances be governed by the
provisions of the Surviving Entity Articles and the Surviving Entity
Operating Agreement.
(F) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of MCP Colorado
Equity Interests and each holder of LLC Equity Interests shall take such
action or cause to be taken such action as LLC may reasonably deem necessary
or appropriate to effect the exchange and continuation of the equity
interests hereunder, including without limitation the execution and delivery
of any stock certificates or other evidences of equity being exchanged or
continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by LLC, or its successors or assigns, MCP Colorado
shall execute and deliver or cause to be executed and delivered all such deeds
and other instruments, and shall take or cause to be taken all such further
action or actions, as LLC, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to LLC, or its successors or assigns,
title to and possession of all of the properties, rights, privileges, powers and
franchises referred to in Section 3 of this Plan, and otherwise to carry out the
intent and purposes of this Plan. If LLC shall at any time deem that any further
assignments or assurances or any other acts are necessary or desirable to vest,
perfect or confirm of record or otherwise the title to any property or to
enforce any claims of MCP Colorado or LLC vested in LLC pursuant to this Plan,
the officers of LLC or its successors or assigns, are hereby specifically
authorized as attorneys-in-fact of each MCP Colorado and LLC (which appointment
is irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each MCP Colorado and LLC, or otherwise, as such officer shall
deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE DATE. The LLC Merger shall become effective at the
time of filing of the Statement of Merger with the Secretary of State of
Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
B-3
<PAGE>
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of MCP Colorado and LLC, as of the date first set
forth above.
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
B-4
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APPENDIX C
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TRANSACTION AGREEMENT
by and among
MINNESOTA CORN PROCESSORS, INC.
a Minnesota cooperative association
and
MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association
and
MINNESOTA CORN PROCESSORS, LLC
a Colorado limited liability company
Dated as of January 22, 1999
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TABLE OF CONTENTS
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ARTICLE I
OVERVIEW OF THE TRANSACTIONS .................................................... 1
Section 1.01 Purpose ............................................................ 1
Section 1.02 The MCP Merger ..................................................... 1
Section 1.03 The LLC Merger ..................................................... 2
Section 1.04 The Closing ........................................................ 2
Section 1.05 Actions at the Closing ............................................. 2
Section 1.06 Effective Time ..................................................... 2
Section 1.07 Effect of the Mergers .............................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE ............................... 3
Section 2.01 Representations and Warranties of the Cooperative .................. 3
Section 2.02 Organization and Good Standing ..................................... 3
Section 2.03 Capital Stock and Equity Participation Units ....................... 3
Section 2.04 Financial Statements ............................................... 4
Section 2.05 Undisclosed Liabilities ............................................ 4
Section 2.06 Compliance with Applicable Laws .................................... 4
Section 2.07 Legal Proceedings .................................................. 4
Section 2.08 Absence of Defaults ................................................ 4
Section 2.09 Authorization ...................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO .................................. 5
Section 3.01 Representations and Warranties of MCP Colorado ..................... 5
Section 3.02 Organization and Good Standing ..................................... 5
Section 3.03 Capital Stock ......................................................
Section 3.04 Authorization ...................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC ........................................... 6
Section 4.01 Representations and Warranties of LLC .............................. 6
Section 4.02 Organization and Good Standing ..................................... 6
Section 4.03 Capital Stock ...................................................... 6
Section 4.04 Authorization ...................................................... 7
ARTICLE V
COVENANTS ....................................................................... 7
Section 5.01 Reasonable Best Efforts ............................................ 7
Section 5.02 Conduct of Business ................................................ 8
Section 5.03 Forbearances ....................................................... 8
Section 5.04 Meetings of Members ................................................ 9
Section 5.05 Access ............................................................. 9
Section 5.06 Notice of Developments ............................................. 9
Section 5.07 Exclusivity ........................................................ 9
Section 5.08 Registration Statement ............................................. 9
ARTICLE VI
CONDITIONS PRECEDENT ............................................................ 10
Section 6.01 Conditions to Obligations of Each Party to the MCP Merger .......... 10
Section 6.02 Conditions to Obligations of Each Party to the LLC Merger .......... 10
Section 6.03 Additional Conditions to Obligation of the Cooperative ............. 11
Section 6.04 Additional Conditions to Obligation of MCP Colorado ................ 12
Section 6.05 Additional Conditions to Obligation of LLC ......................... 12
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ARTICLE VII
POST CLOSING AGREEMENTS ................................................... 13
Section 7.01 Employee Benefit Plans ....................................... 13
Section 7.02 Patronage Distributions ...................................... 13
Section 7.03 1996 Loss Payable ............................................ 13
Section 7.04 Indemnification; Directors' and Officers' Insurance .......... 13
ARTICLE VIII
TERMINATION ............................................................... 14
Section 8.01 Termination of Agreement ..................................... 14
Section 8.02 Effect of Termination ........................................ 14
ARTICLE IX
MISCELLANEOUS ............................................................. 14
Section 9.01 Waiver ....................................................... 14
Section 9.02 Amendment .................................................... 15
Section 9.03 Binding Nature ............................................... 15
Section 9.04 Counterparts ................................................. 15
Section 9.05 Entire Agreement ............................................. 15
Section 9.06 Notices ...................................................... 15
Section 9.07 Nonsurvival of Representations and Warranties ................ 16
Section 9.08 Captions ..................................................... 16
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TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT ( "Agreement") is made and entered into as of
January 22, 1999, by and among MINNESOTA CORN PROCESSORS, a Minnesota
cooperative association (the "Cooperative"), MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association ("MCP Colorado") and MINNESOTA CORN
PROCESSORS, LLC, a Colorado limited liability company ("LLC").
WHEREAS, the Cooperative, MCP Colorado, and LLC are each organized to
benefit and serve their respective members and patrons; and
WHEREAS, the parties believe the interests of their respective members will
best be benefitted and served if the parties reorganize their business
operations and corporate structure whereby: (i) the Cooperative will merge into
MCP Colorado, with MCP Colorado being the surviving entity (the "MCP Merger");
and (ii) MCP Colorado will then merge into LLC, with LLC being the surviving
entity (the "LLC Merger"); the MCP Merger and the LLC Merger may be referred to
in this Agreement individually as a "Merger" or "Transaction" and collectively
as the "Mergers" or "Transactions"; and
WHEREAS, the parties have now agreed on the final terms and conditions of
the Mergers, and wish to: (i) memorialize these agreements as more particularly
described herein; and (ii) enter into this Agreement for the purpose of
effecting the Mergers;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
OVERVIEW OF THE TRANSACTIONS
SECTION 1.01. PURPOSE. The purpose of the transactions contemplated by this
Agreement is to reorganize the corporate structure of the Cooperative from a
Minnesota cooperative association into a Colorado limited liability company.
This reorganization will be accomplished through a two-step merger process.
First, the Cooperative shall merge with and into Cooperative Colorado. Second,
Cooperative Colorado will merge with and into LLC. The MCP Merger and the LLC
Merger are separate and distinct transactions, and each Merger shall be
individually consummated. Although the Mergers are separate transactions,
consummation of the LLC Merger is contingent upon consummation of the MCP
Merger. Upon completion of both Mergers, the Cooperative and MCP Colorado will
cease to exist and LLC will continue as the sole surviving entity.
SECTION 1.02 THE MCP MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit A (the "MCP
Merger Agreement), the Cooperative will merge with and into MCP Colorado. MCP
Colorado shall be the surviving entity (the "Surviving Colorado Entity").
Immediately after completion of the MCP Merger and without any further action by
its board of directors and members, MCP Colorado, as the Surviving Colorado
Entity, shall merge with and into LLC as described in Section 1.03 hereof.
SECTION 1.03 THE LLC MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit B (the "LLC
Merger Agreement), MCP Colorado will merge with and into LLC. LLC shall be the
surviving entity (the "Surviving Entity"), and thereafter shall continue to
exist and operate as Minnesota Corn Processors, LLC under the laws of the State
of Colorado.
SECTION 1.04 THE CLOSING. The closing of the Mergers (the "Closing") will
take place on the date the Effective Time occurs at the offices of Dorsey &
Whitney, LLC, 220 South Sixth Street, Minneapolis, Minnesota 55402 or on such
other date and/or at such other place as the parties may agree.
SECTION 1.05 ACTIONS AT THE CLOSING. At the Closing, the parties shall
take the following actions:
(a) MCP Merger. The Cooperative and MCP Colorado shall (i) execute the
MCP Merger Agreement, (ii) execute and deliver to each other the various
certificates, instruments, and documents
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referred to in the MCP Merger Agreement, and (iii) execute and file with the
Secretary of State of the States of Minnesota and Colorado articles of merger as
required by the laws of the States of Minnesota and Colorado to effectuate the
merger in accordance with the terms of the MCP Merger Agreement.
(b) LLC Merger. MCP Colorado and LLC shall (i) execute the LLC Merger
Agreement, (ii) execute and deliver to each other the various certificates,
instruments, and documents referred to in the LLC Merger Agreement, and (iii)
execute and file with the Colorado Secretary of State a statement of merger as
required by the laws of the State of Colorado to effectuate the merger in
accordance with the terms of the LLC Merger Agreement.
SECTION 1.06 EFFECTIVE TIME. Each of the Mergers shall become effective on
the date on which the articles of merger and statement of merger have been duly
filed in the respective offices of the Minnesota and Colorado Secretary of State
as required by law (the "Effective Time"). At any time after the Effective Time,
LLC as the Surviving Entity may take any action (including executing and
delivering any document) in the name and on behalf of any party to this
Agreement in order to carry out and effectuate the transactions contemplated by
this Agreement.
SECTION 1.07 EFFECT OF THE MERGERS.
(a) Articles of Organization and Operating Agreement. The Articles of
Organization of LLC attached hereto as Exhibit C and the Operating Agreement of
LLC attached hereto as Exhibit D shall become the Articles of Organization and
the Operating Agreement of the Surviving Entity.
(b) Directors and Officers. The officers and directors of the Cooperative
at the Effective Time shall, from and after the Effective Time, be the directors
and officers of LLC (the "LLC Directors and Officers") to serve until their
respective terms have expired and their successors have been duly elected and
qualified in accordance with the terms of LLC's Operating Agreement. The terms
of the LLC Directors and Officers shall expire on the date each such director's
or officer's term would have expired under Article III Section 1 of the
Cooperative's Amended and Restated Bylaws had the Mergers not occurred. At the
Effective Time, the initial directors and officers of MCP Colorado and LLC
immediately prior to the Effective Time shall resign as directors and officers
of MCP Colorado and LLC, respectively.
(c) Stock and Units of Equity Participation. At the Effective Time,
without any further action by the parties or any of their respective members,
and as further described in the MCP Merger Agreement and the LLC Merger
Agreement:
(i) Each member of the Cooperative prior to the Effective Time shall
first become a member of MCP Colorado as a result of the MCP Merger and then
shall automatically become a member of LLC as the Surviving Entity upon
consummation of the LLC Merger; and
(ii) Upon consummation of the MCP Merger, (1) the stock and units of
equity participation held by each member and each nonmember of the
Cooperative shall be automatically converted into like forms and amounts
(on a one-for-one basis) of stock and units of equity participation of MCP
Colorado and (2) all stock of MCP Colorado owned by the Cooperative shall
be cancelled without payment of any consideration therefor. Upon
consummation of the LLC Merger, (1) each unit of equity participation of
MCP Colorado shall automatically be converted into one Class A Unit (for
voting members) or one Class B Unit (for nonvoting members) of LLC and (2)
each outstanding share of common stock of MCP Colorado shall be cancelled.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE
SECTION 2.01. REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE. The
Cooperative represents and warrants to MCP Colorado that the statements
contained in this Article II are correct and complete in all material respects
as of the date of this Agreement, except as set forth in the Cooperative
Disclosure Schedule delivered by the Cooperative to MCP Colorado attached hereto
(the "Cooperative Disclosure Schedule").
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SECTION 2.02 ORGANIZATION AND GOOD STANDING. The Cooperative is a
cooperative association duly organized and existing under Chapter 308A of the
Minnesota Statutes (as amended, the "Cooperative Act"), is in good standing
under the laws of the State of Minnesota, and has all requisite corporate power
and authority to own its properties and conduct its business as it is presently
being conducted. The Cooperative is duly qualified to do business and is in good
standing in each jurisdiction in which it conducts business or owns or leases
properties of a nature which would require such qualification.
SECTION 2.03 CAPITAL STOCK AND EQUITY PARTICIPATION UNITS. As of the date
hereof, the authorized capital stock of the Cooperative consists solely of
100,000 shares of common stock, of which 28,321 are issued and outstanding, and
100,000 shares of preferred stock, none of which are issued and outstanding. A
total of 195,696,031 units of equity participation (voting and nonvoting) are
issued and outstanding. The outstanding shares of common stock and units of
equity participation have been duly authorized and are validly issued and
outstanding.
SECTION 2.04 FINANCIAL STATEMENTS. The Cooperative has delivered to MCP
Colorado its audited financial statements as of March 31, 1998, accompanied by
the opinion of Clifton, Gunderson, LLC and its unaudited financial statements as
of September 30, 1998, certified by the Treasurer of the Cooperative. Such
financial statements fairly present the financial position of the Cooperative at
the dates indicated therein and the results of its operation for the periods
indicated therein, in conformity with generally accepted accounting principles
consistently applied. There has been no material adverse change in the financial
condition or results of operations of the Cooperative since the date of such
financial statements.
SECTION 2.05 UNDISCLOSED LIABILITIES. Except for those liabilities
reflected in the financial statements referred to in Section 2.04 and for
liabilities incurred in the ordinary course of business since September 30,
1998, the Cooperative has not incurred a liability that, either individually or
in the aggregate, has had or will have a material adverse effect on the
Cooperative.
SECTION 2.06 COMPLIANCE WITH APPLICABLE LAWS. The Cooperative is in
compliance with all applicable laws and regulations the violation of which would
have a material adverse effect on the Cooperative or on its business as
currently conducted. The Cooperative has all material licenses and permits
required by law or otherwise necessary for the proper operation of its business
as currently conducted, all of such licenses and permits are in full force and
effect, and no action to terminate, withdraw, not renew or materially limit or
otherwise change any such license or permit is pending or has been threatened by
any governmental agency or other party.
SECTION 2.07 LEGAL PROCEEDINGS. There is no material action, proceeding or
investigation by any administrative or regulatory body or other person which has
been commenced or is pending, or to the best of the Cooperative's knowledge
after reasonable inquiry, is threatened against the Cooperative or any of the
assets which are owned by the Cooperative.
SECTION 2.08 ABSENCE OF DEFAULTS. The Cooperative is not in any material
respect in default under any provision of its Articles of Incorporation or
Bylaws or any material indenture, mortgage, loan agreement or other material
agreement to which it is a party or by which it is bound, and the Cooperative is
not in violation of any statute, order, rule or regulation of any court or
governmental agency having jurisdiction over it or its properties which if
enforced could have a material adverse effect on its business, and except for
any consent or approval identified on Exhibit E attached hereto, neither the
execution and delivery of this Agreement nor the consummation of the
Transactions in accordance with this Agreement will in any material respect
conflict with or result in a breach of any of the foregoing, which if enforced
could have a material adverse effect on its business.
SECTION 2.09 AUTHORIZATION. The Cooperative has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Section 6.01(a)). This
Agreement and the Transaction have been duly and validly authorized by the Board
of Directors of the Cooperative, and, except for the approval of its members as
required by Section 6.01(a), no other corporate action is required by the
Cooperative in connection with this Agreement or the Transaction. This Agreement
constitutes the valid and binding agreement of the Cooperative, enforceable
against the Cooperative in accordance with its terms, except to the extent such
enforcement may be limited by the application of equitable principles where
equitable relief is sought or bankruptcy and other laws relating to the
enforcement of creditors, rights generally.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF MCP COLORADO. MCP Colorado
represents and warrants to the Cooperative and LLC that the statements contained
in this Article III are correct and complete in all material respects as of the
date of this Agreement, except as set forth in the MCP Colorado Disclosure
Schedule attached hereto (the "MCP Colorado Disclosure Schedule").
SECTION 3.02 ORGANIZATION AND GOOD STANDING. MCP Colorado is a cooperative
association duly organized and existing under the Colorado Cooperative Act, is
in good standing under the laws of the State of Colorado, and has all requisite
corporate power and authority to own its properties and conduct its business as
it is presently being conducted. MCP Colorado is duly qualified to do business
and is in good standing in each jurisdiction in which it conducts business or
owns or leases properties of a nature which would require such qualification.
SECTION 3.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of MCP Colorado consists of 100,000 shares of common stock, of which one
share is issued and outstanding, and 100,000 shares of preferred stock, of which
none are issued and outstanding.
SECTION 3.04 AUTHORIZATION. MCP Colorado has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Sections 6.01(b) and
6.02(a)). This Agreement and the Transaction have been duly and validly
authorized by the Board of Directors of MCP Colorado, and except for the
approvals of its members and defined members as required by Sections 6.01(b) and
6.02(a) no other corporate action is required by MCP Colorado in connection with
this Agreement or the Transactions. This Agreement constitutes the valid and
binding agreement of MCP Colorado, enforceable against MCP Colorado in
accordance with its terms, except to the extent such enforcement may be limited
by the application of equitable principles where equitable relief is sought or
bankruptcy and other laws relating to the enforcement of creditors, rights
generally.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and
warrants to MCP Colorado that the statements contained in this Article IV are
correct and complete in all material respects as of the date of this Agreement,
except as set forth in the LLC Disclosure Schedule delivered by LLC to MCP
Colorado attached hereto (the "LLC Disclosure Schedule").
SECTION 4.02 ORGANIZATION AND GOOD STANDING. LLC is a limited liability
company duly organized and existing under the Colorado Limited Liability Company
Act, is in good standing under the laws of the State of Colorado, and has all
requisite corporate power and authority to own its properties and conduct its
business as it is presently being conducted. LLC is duly qualified to do
business and is in good standing in each jurisdiction in which it conducts
business or owns or leases properties of a nature which would require such
qualification.
SECTION 4.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of LLC consists of 350,000,000 Class A units and 150,000,000 Class B
units, of which none are issued and outstanding, respectively.
SECTION 4.04 AUTHORIZATION. LLC has the corporate power and authority to
execute and to perform its obligations under this Agreement. This Agreement and
the Transaction have been duly and validly authorized by the Board of Directors
of LLC, and, except for the approval of its members as required by Section
6.02(b), no other corporate action is required by LLC in connection with this
Agreement or the Transaction. This Agreement constitutes the valid and binding
agreement of LLC, enforceable against LLC in accordance with its terms, except
to the extent such enforcement may be limited by the application of equitable
principles where equitable relief is sought or bankruptcy and other laws
relating to the enforcement of creditors, rights generally.
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ARTICLE V
COVENANTS
SECTION 5.01 REASONABLE BEST EFFORTS. Each party agrees to cooperate with
the other parties hereto and to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable, or advisable under applicable laws, so as
to permit consummation of the Mergers as promptly as practicable. In addition,
each party shall cooperate and use its reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties necessary to consummate the
Transactions contemplated by this Agreement.
SECTION 5.02 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, each of the Cooperative and MCP Colorado shall conduct its business
in the ordinary course and in a manner consistent with its past practices
(except as expressly contemplated hereby), and shall use good faith efforts to
preserve intact its business organization, properties (except as they may be
sold, used or otherwise disposed of in the ordinary course) and the good will of
its members, suppliers, customers and others having business relationships with
it.
SECTION 5.03 FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, without the prior consent of the other party to this Agreement,
neither party shall:
(a) grant to any person any option or other right to acquire capital
stock or other equity interests, except for allocation of patronage equities in
a manner consistent with past practice;
(b) issue any additional shares or units of capital stock and other
equity interests, except in the ordinary course of business and consistent with
past practice;
(c) enter into, amend or terminate any material contract, lease or
understanding;
(d) amend its Articles of Incorporation or Articles of Organization, as
the case may be, its Bylaws or Operating Agreement, as the case may be, or any
board policies;
(e) incur any indebtedness for borrowed money or make any commitment to
borrow money, except indebtedness incurred in the ordinary course of business
pursuant to credit arrangements existing as of the date of this Agreement
(including any renewals thereof);
(f) make any material capital expenditures other than in the ordinary
course of business or which were disclosed to the other party;
(g) mortgage any of its assets or properties, or except in the ordinary
course of business, sell any of its material assets or properties;
(h) pay any dividends or make any distributions with respect to its
capital stock or equity interests, except in the ordinary course of business;
(i) reclassify, combine, subdivide, split, or amend its capital stock or
equity interests;
(j) purchase, acquire or redeem any shares of its capital stock or equity
interests, except in the ordinary course of business; or
(k) agree or commit to do any of the foregoing.
SECTION 5.04 MEETINGS OF MEMBERS. Each of the Cooperative and MCP Colorado
will take all steps necessary to call an appropriate meeting of its respective
members, for the purpose of considering and voting on this Agreement and its
respective Merger in accordance with its respective Articles of Incorporation,
Bylaws and applicable law.
SECTION 5.05 ACCESS. Each party will permit the authorized representatives
of the other parties to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of such party,
to all premises, properties, personnel, books, records (including tax records),
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contracts, and documents of or pertaining to such party, and will furnish them
such additional financial and operating data and other information concerning
its business and properties as such other parties may from time to time
reasonably request. Each of the parties will use their best efforts to cause all
confidential information obtained by it from the other parties to be treated as
such, will also use its best efforts not to use such information in a manner
detrimental to such party and, if for any reason the Transactions are not
consummated, will promptly return all documents, papers, books, records and
other materials (and all copies thereof) obtained in the course of its
investigation and evaluation.
SECTION 5.06 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties contained herein. Except as specified
in such written notice, no disclosure by a party pursuant to this Section 5.06
shall be deemed to amend or supplement such party's Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
SECTION 5.07 EXCLUSIVITY. Except for the Transactions contemplated by this
Agreement, none of the parties will (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of such party (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. Each party will notify the other
party immediately if any person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
SECTION 5.08 REGISTRATION STATEMENT. LLC shall promptly prepare and file
with the SEC a Registration Statement on Form S-4 (the "Registration Statement")
in connection with the issuance of Class A and Class B units in the LLC Merger.
The parties shall use their reasonable best efforts to have the Registration
Statement declared effective under the Securities Act of 1933 (the "Securities
Act") as promptly as practicable after such filing, and the parties shall
thereafter mail or deliver the Information Statement Prospectus, which
constitutes a part of the Registration Statement, to their respective members.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE MCP MERGER. The
respective obligations of the Cooperative and MCP Colorado to consummate the MCP
Merger and other matters described in this Agreement, are subject to the
satisfaction or waiver of each of the following conditions on or before the
Effective Time, except that condition (f) must be satisfied and cannot be waived
by either party:
(a) The members of the Cooperative shall have approved this Agreement and
the MCP Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of the Cooperative;
(b) The members of MCP Colorado shall have approved the MCP Merger
Agreement and this Agreement all in accordance with the requirements of
applicable law and the Articles of Incorporation and Bylaws of MCP Colorado;
(c) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(d) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(e) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of
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the Transactions or seeking to obtain divestiture or other relief in the event
of consummation of the Transactions. It is understood in the event that such an
action is threatened or instituted, the parties will first attempt for a period
of 90 days to obtain dismissal or other favorable resolution of such threatened
or actual action prior to exercise of their right to terminate hereunder;
(f) The members of MCP Colorado shall have approved the LLC Merger
Agreement and this Agreement as set forth in Section 6.02(a); and
(g) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE LLC MERGER. The
respective obligations of MCP Colorado and LLC to consummate the LLC Merger and
other matters described in this Agreement, are subject to the satisfaction or
waiver of each of the following conditions on or before the Effective Time,
except that condition (f) must be satisfied and cannot be waived by either
party:
(a) The members of MCP Colorado shall have approved this Agreement and
the LLC Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of MCP Colorado;
(b) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(c) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(d) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of the Transactions or
seeking to obtain divestiture or other relief in the event of consummation of
the Transactions. It is understood in the event that such an action is
threatened or instituted, the parties will first attempt for a period of 90 days
to obtain dismissal or other favorable resolution of such threatened or actual
action prior to exercise of their right to terminate hereunder;
(e) The members of the Cooperative and MCP Colorado shall have approved
the MCP Merger Agreement and this Agreement as set forth in Section 6.01(a) and
6.01(b), and the MCP Merger should be consummated; and
(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.03 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COOPERATIVE. The
obligation of the Cooperative to consummate the MCP Merger is subject to the
satisfaction or waiver of each of the following additional conditions at or
before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the MCP
Merger Agreement prior to the Effective Time;
(b) The Cooperative shall have received a certificate, dated as of the
Effective Time, and executed by the President of MCP Colorado, certifying in
such detail as the Cooperative may reasonably request as to the accuracy of such
representations and warranties, the fulfillment of such obligations, compliance
with such covenants and satisfaction of the conditions to the Cooperative's
obligation as of the Effective Time; and
(c) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to the Cooperative.
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SECTION 6.04 ADDITIONAL CONDITIONS TO OBLIGATION OF MCP COLORADO. The
obligation of MCP Colorado to consummate the MCP Merger and the LLC Merger is
subject to the satisfaction or waiver of each of the following additional
conditions at or before the Effective Time:
(a) The representations and warranties of the Cooperative and LLC
contained in this Agreement shall be true and correct in all material respects
as of the Effective Time as though such representations and warranties were made
on and as of the Effective Time, and the Cooperative and LLC shall have
performed in all material respects all of their respective obligations required
to be performed by each of them under this Agreement, the MCP Merger Agreement,
and the LLC Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
MCP Colorado after the date hereof that alone, or together with all other facts,
events or circumstances, has had or is reasonably likely to have a material
adverse effect on the Cooperative or the Surviving Entity;
(c) MCP Colorado shall have received a certificate, from each of the
Cooperative and LLC dated as of the Effective Time, executed by their
Presidents, certifying in such detail as MCP Colorado may reasonably request as
to the accuracy of their representations and warranties, the fulfillment of
their obligations, compliance with their covenants and satisfaction of the
conditions to MCP Colorado's obligations as of the Effective Time; and
(d) All actions, proceedings and documents necessary to carry out the
Transaction (including, without limitation, the Cooperative Disclosure Schedule
and LLC Disclosure Schedule) shall be reasonably satisfactory to MCP Colorado.
SECTION 6.05 ADDITIONAL CONDITIONS TO OBLIGATION OF LLC. The obligation of
LLC to consummate the LLC Merger is subject to the satisfaction or waiver of
each of the following additional conditions at or before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the LLC
Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
LLC after the date hereof that alone, or together with all other facts, events
or circumstances, has had or is reasonably likely to have a material adverse
effect on MCP Colorado;
(c) LLC shall have received a certificate, dated as of the Effective
Time, and executed by the President of MCP Colorado, certifying in such detail
as LLC may reasonably request as to the accuracy of such representations and
warranties, the fulfillment of such obligations, compliance with such covenants
and satisfaction of the conditions to LLC's obligation as of the Effective Time;
and
(d) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to LLC.
ARTICLE VII
POST CLOSING AGREEMENTS
SECTION 7.01 EMPLOYEE BENEFIT PLANS. From and after the Effective Time, the
employee benefit plans of the Cooperative in effect as of the date of this
Agreement shall remain in effect with respect to employees of the Cooperative
(or their subsidiaries) covered by such plans at the Closing Date until such
time as LLC shall, subject to applicable law and the terms of such plans, adopt
new benefit plans with respect to employees of LLC. LLC agrees to honor in
accordance with their terms all benefits vested as of the date hereof under the
employee benefit plans of the Cooperative. Nothing in this Section 7.01 shall be
interpreted as preventing LLC from amending, modifying or terminating any
employee benefit plan of the Cooperative or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
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SECTION 7.02 PATRONAGE DISTRIBUTIONS. Following the Effective Time and
within the time period required by the various provisions of the Code, the
Surviving Entity will make patronage distributions to the former members of each
party based on patronage transactions with the respective parties during each
party's respective fiscal year or portion thereof immediately preceding the
Effective Time. The patronage distributions shall be in the form of cash and
equity credits in a manner consistent with the previous patronage distributions
of each party (and in the case of equity credits, in the form of Class A Units
or Class B units of LLC, as appropriate).
SECTION 7.03 1996 LOSS PAYABLE. After the Effective Time, the unpaid
portion of the Cooperative's operating loss for the fiscal year ended September
30, 1996 that was assessed against a unit of equity participation of the
Cooperative shall continue as a lien against a Class A unit received in the LLC
Merger.
SECTION 7.04 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and
after the Effective Time, the Surviving Entity shall indemnify each present and
former director, officer, employee or agent of the Cooperative or MCP Colorado
and each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture or any other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities or expenses
(including legal fees) arising out of or pertaining to matters existing or
occurring at or before the Effective Time, whether asserted or claimed prior to,
at or after the Effective Time, to the fullest extent permitted by law. The
Surviving Entity may obtain insurance coverage against any such loss, claim or
expense, subject to standard exclusions and exceptions to coverage, but is not
obligated to do so.
ARTICLE VIII
TERMINATION
SECTION 8.01 TERMINATION OF AGREEMENT. This Agreement shall be terminated
and the Transactions abandoned if at any time prior to the Effective Time:
(a) The members of the Cooperative fail to approve the Merger as required
by Section 6.01(a) or the members of MCP Colorado fail to approve the Merger as
required by Sections 6.01(b) and 6.02(a).
(b) The parties mutually agree in writing to terminate this Agreement;
or
(c) Either party to a Merger delivers a written notice to the other, to
the effect that (i) one or more of the conditions to its obligations as set
forth herein cannot be met, (ii) the other party has defaulted in a material
respect under one or more of its covenants or agreements contained herein, or
(iii) any of the representations or warranties of the other party are or have
become materially untrue or incorrect as of the date of such notice, and in any
case such condition or conditions have not been satisfied, such default or
defaults have not been remedied or such representation or warranty has not been
rendered true and correct within thirty (30) days after such notice is mailed;
or
(d) The Closing has not occurred on or before August 1, 1999, or such
later date as the parties may mutually agree upon.
SECTION 8.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.01 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
(except for any liability of a party then in breach); provided, however, that
the confidentiality and return of documents provisions contained in or referred
to Section 5.05 above shall survive any such termination.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 WAIVER. At any time before the Effective Time, any provision
of this Agreement may, to the extent legally allowed, be waived by the party
benefitted by the provision by an agreement in
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writing between the parties hereto executed in the same manner as this
Agreement, except that after approval of the Mergers contemplated by this
Agreement by the respective members of the Cooperative and MCP Colorado, there
may not be any waiver of any provision of this Agreement which would reduce the
amount or form of consideration to be received by members in the Mergers.
SECTION 9.02 AMENDMENT. The parties by mutual consent may amend, modify or
supplement this Agreement in such manner as may be agreed upon in writing;
provided, however, that after approval of the Mergers by the respective members
of the Cooperative and MCP Colorado, this Agreement may not be amended if it
would violate applicable law or reduce the amount or form of the consideration
to be received by members in the Mergers.
SECTION 9.03 BINDING NATURE. This Agreement shall be binding upon and inure
only to the benefit of the parties hereto and their respective successors and
assigns, provided that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties hereto.
SECTION 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.05 ENTIRE AGREEMENT. This Agreement, the MCP Merger Agreement,
the LLC Merger Agreement and the other documents referred to herein and therein
set forth the entire understanding of the parties hereto with respect to the
matters provided for herein and therein and supersede all prior agreements,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of either party.
SECTION 9.06 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered
personally, telecopied (with confirmation) or mailed by certified or registered
mail (return receipt requested), to the parties at the following addresses (or
such other address as such party may specify by like notice):
If to the Cooperative: Minnesota Corn Processors, Inc.
901 North Highway 59
Marshall, MN 56258
Attn: L. Dan Thompson
If to MCP Colorado: Minnesota Corn Processors Colorado
---------------------------
---------------------------
---------------------------
Attn:----------------------
If to LLC: Minnesota Corn Processors, LLC
---------------------------
---------------------------
---------------------------
Attn:----------------------
SECTION 9.07 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in Articles II, III and
IV of this Agreement shall form the basis for closing conditions only, shall not
survive the Effective Time and shall not form the basis for any action by or on
behalf of either party or any third party for breach, misrepresentation or
indemnity at any time after the Effective Time.
SECTION 9.08 CAPTIONS. The article and section headings of this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
* * * * * * * * * * * * * * * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
EXHIBITS
Exhibit A - MCP Merger Agreement
Exhibit B - LLC Merger Agreement
Exhibit C - Surviving Entity Articles of Organization
Exhibit D - Surviving Entity Operating Agreement
Exhibit E - List of Consents and Approvals
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APPENDIX D
OPERATING AGREEMENT
OF
MINNESOTA CORN PROCESSORS, LLC
A Colorado Limited Liability Company
(CONTAINS RESTRICTIONS ON
TRANSFERABILITY OF MEMBERSHIP INTERESTS)
<PAGE>
MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I DEFINITIONS ................................................................. 1
1.1 Terms Defined in the Act .................................................. 1
1.2 Terms Defined Herein ...................................................... 1
ARTICLE II THE LIMITED LIABILITY COMPANY ............................................... 8
2.1 Formation; Effective Date of Agreement .................................... 8
2.2 Name ...................................................................... 8
2.3 Business Purpose .......................................................... 9
2.4 Powers .................................................................... 9
2.5 Duration .................................................................. 9
2.6 Registered Office and Registered Agent .................................... 9
2.7 Principal Office .......................................................... 9
2.8 Title to Property; No Agency Power ........................................ 9
2.9 Limited Liability of Members and Directors ................................ 9
ARTICLE III MEMBERS .................................................................... 10
3.1 Membership ................................................................ 10
3.2 Ownership of Membership Interests ......................................... 10
3.3 Classes of Membership ..................................................... 11
3.4 Voting .................................................................... 11
3.5 Place of Meetings ......................................................... 12
3.6 Regular Meetings .......................................................... 12
3.7 Special Meetings .......................................................... 12
3.8 Notice of Meetings ........................................................ 12
3.9 Waiver of Notice .......................................................... 12
3.10 Quorum .................................................................... 12
3.11 Proxies; Mail Ballots ..................................................... 13
3.12 Action Without Meeting .................................................... 13
3.13 Telephonic Meetings ....................................................... 13
3.14 Termination of Membership ................................................. 13
3.15 Continuation of the Company ............................................... 14
3.16 No Obligation to Purchase Units ........................................... 14
3.17 Advance Consent to Certain Substitute Members ............................. 14
3.18 Compliance with Articles of Organization and Operating Agreement .......... 15
3.19 No Dissenters' Rights ..................................................... 15
ARTICLE IV CAPITAL ..................................................................... 15
4.1 Units ..................................................................... 15
4.2 Capital Accounts .......................................................... 15
4.3 Initial Issuance of Units; Offering of Additional Units ................... 16
4.4 No Capital Calls .......................................................... 17
4.5 Tax Withholding Obligations ............................................... 17
4.6 Transferee Succeeds to Transferor's Capital Account ....................... 17
4.7 No Right to Return of Contributions ....................................... 17
4.8 No Interest on Capital Contributions ...................................... 17
4.9 Loans to the Company ...................................................... 17
4.10 No Repayment Liability .................................................... 17
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ARTICLE V ALLOCATIONS AND DISTRIBUTIONS ............................................... 18
5.1 Allocation of Profits and Losses .......................................... 18
5.2 Special Allocations ....................................................... 18
5.3 Curative Allocations ...................................................... 20
5.4 Loss Limitation ........................................................... 20
5.5 Other Allocation Rules .................................................... 20
5.6 Tax Allocations ........................................................... 21
5.7 Distributions ............................................................. 21
5.8 Tax Withholding Obligations Constitute a Distribution ..................... 22
ARTICLE VI BOARD OF DIRECTORS .......................................................... 22
6.1 Board of Directors ........................................................ 22
6.2 Qualifications of Directors ............................................... 22
6.3 Election of Directors ..................................................... 22
6.4 Removal of Directors ...................................................... 22
6.5 Vacancies ................................................................. 22
6.6 Annual Meeting ............................................................ 23
6.7 Regular Meetings .......................................................... 23
6.8 Special Meetings .......................................................... 23
6.9 Quorum, Voting ............................................................ 23
6.10 Executive Committee ....................................................... 23
6.11 Compensation .............................................................. 23
6.12 Number of Districts ....................................................... 24
6.13 Districting Committee ..................................................... 24
6.14 Counties and Districts .................................................... 24
6.15 Directors and Districts ................................................... 25
6.16 Board Actions Requiring Approval of Members ............................... 25
6.17 Absent Directors .......................................................... 26
6.18 Action Without Meeting .................................................... 26
6.19 Telephonic Meetings ....................................................... 26
ARTICLE VII DUTIES OF DIRECTORS ........................................................ 26
7.1 General Powers ............................................................ 26
7.2 Employment of President and Chief Executive Officer ....................... 27
7.3 Bonds and Insurance ....................................................... 27
7.4 Accounting System and Audit ............................................... 27
7.5 Agreements with Members ................................................... 27
7.6 Depository ................................................................ 27
ARTICLE VIII BOARD OFFICERS; PRESIDENT AND CHIEF
EXECUTIVE OFFICER ......................................................... 27
8.1 Election of Board Officers ................................................ 27
8.2 Duties of Chairman ........................................................ 28
8.3 Duties of Vice Chairman ................................................... 28
8.4 Duties of Secretary ....................................................... 28
8.5 Duties of President and Chief Executive Officer ........................... 28
8.6 Compensation .............................................................. 29
8.7 Special Powers ............................................................ 29
ARTICLE IX REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS ................................ 29
9.1 Required Records .......................................................... 29
9.2 Books of Account .......................................................... 30
9.3 Tax Characterization, Returns, Elections and Information .................. 30
9.4 Tax Matters Partner; Tax Audit Costs ...................................... 30
ARTICLE X TRANSFER OF MEMBER INTERESTS ................................................ 31
10.1 Restrictions on Transfer. ................................................. 31
10.2 Conditions Precedent to Transfers ......................................... 32
10.3 Substitution of Member .................................................... 32
10.4 Effective Date of Transfer ................................................ 33
10.5 Distributions and Allocations in Respect to Transferred Interest .......... 33
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ARTICLE XI DISSOLUTION AND WINDING UP ....................................... 34
11.1 Liquidating Events ............................................. 34
11.2 Winding Up ..................................................... 34
11.3 Distributions Upon Dissolution ................................. 34
11.4 Compliance With Regulations; Deficit Capital Accounts .......... 35
11.5 Deemed Distribution and Recontribution ......................... 35
11.6 Allocations During Period of Liquidation ....................... 35
11.7 Character of Liquidating Distributions ......................... 36
ARTICLE XII MEMBERS BOUND BY AGREEMENT ....................................... 36
ARTICLE XIII INDEMNIFICATION OF DIRECTORS AND EMPLOYEES ...................... 36
13.1 Indemnity of Directors, Employees and Other Agents ............. 36
ARTICLE XIV MISCELLANEOUS .................................................... 37
14.1 Entire Agreement ............................................... 37
14.2 Amendment ...................................................... 37
14.3 Conflict with Articles ......................................... 37
14.4 Certificates of Membership Interest ............................ 37
14.5 Severability ................................................... 37
14.6 Remedies ....................................................... 38
14.7 Consent and Waiver ............................................. 38
14.8 No Third Party Beneficiary ..................................... 38
14.9 Notices ........................................................ 38
14.10 Binding Effect ................................................. 38
14.11 Necessary Instruments and Acts ................................. 39
14.12 Number and Gender .............................................. 39
14.13 Interpretation ................................................. 39
14.14 Counterparts ................................................... 39
14.15 Governing Law .................................................. 39
SCHEDULE A
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MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
THIS OPERATING AGREEMENT is entered into and made effective as of the 22nd
day of January, 1999 by and between Minnesota Corn Processors, LLC, a Colorado
limited liability company (the "Company"), and the members of the Company who
are identified as such on the Membership Register from time to time
(collectively, the "Members").
RECITALS
WHEREAS, the Members have caused the Company to be formed under the laws of
the State of Colorado for the following purposes: (a) to acquire all of the
businesses and assets of Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation (the "Cooperative"); and (b) to operate the corn
processing and marketing business currently operated by the Cooperative; and (c)
for any other lawful purpose. The Members hereby adopt this Agreement as the
Operating Agreement of the Company as contemplated by Section 7-80-108 of the
Colorado Limited Liability Company Act.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
of the Members contained herein, and the mutual benefits to be gained by the
performance hereof, each of the Members agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in the Act. Unless defined specifically herein, terms
relating to a limited liability company shall have the meanings given in or
interpreted under the Colorado Limited Liability Company Act.
1.2 Terms Defined Herein. The following capitalized words and phrases shall
have the following respective meanings as used herein, except as may be
otherwise expressly provided in this Agreement or unless the context otherwise
specifies.
"ACT" means the Colorado Limited Liability Company Act, as amended, and
any successor thereto.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Unit
Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of
the end of the relevant allocation period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Unit Holder is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"AFFILIATE" means, with respect to a specified Person, any Person,
directly or indirectly, through one or more intermediaries, controlling or
controlled by, or under common control with a specified Person. The term
"control", as used in the preceding sentence, means with respect to a
corporation the right to exercise, directly or indirectly, more than 50% of the
voting rights attributable to the controlled
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corporation, and, with respect to any partnership, trust or other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"AGREEMENT" means this Operating Agreement of Minnesota Corn Processors,
LLC, as amended, modified or supplemented from time to time, including any
schedules to this Agreement. Words such as "herein", "hereinafter", "hereof",
and "hereunder" refer to this Agreement.
"ARTICLES OF ORGANIZATION" means the Articles of Organization filed on
behalf of the Company with the Secretary of State of Colorado, as from time to
time amended.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company established by Article VI. For purposes of the Act, the "Board" or
"Board of Directors" shall mean the board of managers of the Company.
"CAPITAL ACCOUNT" means, with respect to any Unit Holder, the Capital
Account maintained for such Person in accordance with the provisions of Section
4.2 herein.
"CAPITAL CONTRIBUTIONS" means, with respect to any Unit Holder, the
amount of money and the Gross Asset Value of any property (other than money) and
the agreed value of services rendered or the obligation to perform services
which are contributed to the capital of the Company with respect to the Units
held by such Person pursuant to the terms of this Agreement.
"CERTIFICATE OF MEMBERSHIP INTEREST" means a certificate or other
evidence of ownership of the Units adopted by the Company pursuant to Section
14.4 of this Agreement.
"CLASS A MEMBER" means a Member that owns Class A Units.
"CLASS B MEMBER" means a Member that owns Class B Units.
"CLASS A UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a voting Membership
Interest.
"CLASS B UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a non-voting Membership
Interest.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"COMPANY" shall have the meaning assigned to that term in the first
paragraph of this Agreement.
"COMPANY MINIMUM GAIN" shall have the same meaning as "partnership
minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"COMPETITOR" means (i) each Person identified as a Competitor on Schedule
A attached hereto and the successors and assigns thereof; (ii) any other Person
identified by the Company as a Competitor; and (iii) any officer or director of
any Person identified in (i) and (ii) hereof.
"DEPRECIATION" means, for each allocation period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such allocation period, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such allocation period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such allocation period bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such allocation period is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors.
"DIRECTOR" or "DIRECTORS" means the natural persons elected, appointed,
or otherwise designated as directors by the Members to direct the business and
affairs of the Company as provided in Article VI. For purposes of the Act, the
directors shall be deemed to be the "managers" of the Company.
"ESTABLISHED VALUE" means a per-Unit value established by the Board of
Directors from time to time, which shall be based on (i) seventy-five percent
(75%) of the fair market value for the Units, as
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determined by the Board of Directors using reasonable valuation methods; or (ii)
the book value of the Units as shown on the Company's most recent audited
financial statements, whichever is less.
"EVENT OF DISASSOCIATION" shall have the meaning assigned to that term in
Section 3.15 of this Agreement.
"GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset, as determined by
the Board of Directors, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 4.3 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values (taking Code Section 7701(g)
into account), as determined by the Board of Directors as of the following
times: (i) the acquisition of an additional interest in the Company by any new
or existing Member in exchange for more than a DE MINIMIS Capital Contribution;
(ii) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company property as consideration for an interest in the Company; and
(iii) the liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this paragraph shall be made only if the Board of Directors reasonably
determines that such adjustment is necessary to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets distributed to
any Member shall be adjusted to equal the gross fair market value (taking Code
Section 7701(g) into account) of such asset on the date of distribution as
determined by the Board of Directors; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the
definition of "Profits and Losses" or Section 5.2(c) hereof; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv)
to the extent that an adjustment pursuant to subparagraph (b) is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"INITIAL AGREED VALUE PER UNIT" shall mean the fair market value of each
Unit received by the Initial Members pursuant to the Transaction Agreement in
the merger of MCP Colorado into the Company as determined by a nationally
recognized appraisal firm selected by the Cooperative. The Board of Directors
shall be authorized to make reasonable modifications to such appraisal to
reflect intervening events between the date of the appraisal and the transfer of
Units to the Initial Members pursuant to the merger of MCP Colorado with and
into the Company pursuant to the Transaction Agreement.
"INITIAL MEMBERS" shall mean, (i) prior to the merger of MCP Colorado
into the Company pursuant to the Transaction Agreement, the Cooperative, and
(ii) from and after the effective time of the merger of MCP Colorado into the
Company pursuant to the Transaction Agreement, each Person who receives Class A
Units or Class B Units pursuant to such merger.
"LIQUIDATING EVENT" shall have the meaning assigned to that term in
Section 9.1 of this Agreement.
"LOSSES" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
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"MCP COLORADO" means Minnesota Corn Processors Colorado, the transitory
Colorado cooperative into which the Cooperative will be merged in anticipation
of the merger of such Colorado cooperative into the Company.
"THE COOPERATIVE" means Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation.
"MEMBER" means any Person (i) who has become a Member pursuant to the
terms of this Agreement, and who is designated as a Member on the Membership
Register, (ii) who is the owner of 1,000 or more Units, and (iii) who has not
ceased to be a Member pursuant to the terms of this Agreement. "Members" means
all such Persons.
"MEMBERSHIP INTEREST" means a Unit Holder's share of the Profits and
Losses of the Company and a Unit Holder's right to receive distributions of cash
or other assets of the Company in accordance with the terms of this Agreement.
"MEMBERSHIP REGISTER" shall have the meaning specified in Section 3.1 of
this Agreement.
"1996 LOSS PAYABLE" shall mean the unpaid portion of the Cooperative's
operating loss for fiscal year ended September 30, 1996 that was assessed
against a unit of equity participation by the Board of Directors of The
Cooperative and which pursuant to the Transaction Agreement continues as a lien
in favor of the Company against a Class A Unit into which such unit of equity
participation has been converted.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"PERSON" means any individual, partnership, limited liability company,
association, corporation, cooperative, estate, trust or other entity, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
"PROFITS" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
"PROFITS AND LOSSES" shall mean, for each allocation period, an amount
equal to the Company's taxable income or loss for such allocation period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition of "Profits" and "Losses" shall be added to such taxable income or
loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the Gross Asset Value of the asset) or an item of loss (if the
adjustment decreases the Gross Asset Value of the asset) from the disposition of
such asset and shall be taken into account for purposes of computing Profits or
Losses;
(d) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Property disposed of,
notwithstanding that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
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(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Regulations
Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Section 5.2 or Section 5.3
hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"PROPERTY" means all real and personal property, including cash, acquired
and operated by the Company and any improvements thereto, and shall include both
tangible and intangible property.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code as such Regulations may be amended from
time to time (including corresponding provisions of succeeding Regulations).
"SPECIAL FINANCIAL INTERESTS" means the nonvoting financial interest in
the Company issued to the former holders of nonqualified written notices of
allocation issued by the Cooperative, the stated amounts of which shall
correspond to the stated amounts of such nonqualified written notices of
allocation.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 5.3
hereof.
"TAX WITHHOLDING OBLIGATION" means an amount equal to the portion of any
amount allocated, credited, or otherwise distributable to a Unit Holder which
the Company is required to withhold for income tax purposes pursuant to any
applicable federal, state, local, or other governmental agency law or
regulation.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated January 22,
1999 between the Cooperative, MCP Colorado and the Company.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer, sale
or other disposition and, as a verb, to voluntarily or involuntarily transfer,
sell, or otherwise dispose of, but shall not include a pledge, grant of a
security interest or other encumbrance.
"UNIT" means the unit of measurement used herein to quantify the
Membership Interest of a Unit Holder, consisting of Class A Units or Class B
Units, as reflected on the Membership Register. A Unit Holder's Membership
Interest as quantified by the number of Units owned by such Person may be
evidenced by a certificate of Units issued by the Company, which certificate
shall contain appropriate restrictive legends.
"UNIT HOLDER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"UNIT HOLDER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"UNIT HOLDER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"UNIT HOLDERS" means all Persons who hold Units. "Unit Holder" means any
one of the Unit Holders.
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ARTICLE II
THE LIMITED LIABILITY COMPANY
2.1 Formation; Effective Date of Agreement. The Company is formed as a
Colorado limited liability company pursuant to and in accordance with the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. This Agreement is made effective as of the formation of the Company.
2.2 Name. The name of the Company shall be Minnesota Corn Processors, LLC.
All business of the Company shall be conducted in such name or in trade names
approved by the Board of Directors. The name of the Company may be changed from
time to time in accordance with the Act.
2.3 Business Purpose. The purpose of the Company is to conduct any business
activity in which a limited liability company organized under the Act may be
lawfully engaged in and to conduct any and all activities related or incidental
thereto, including the acquisition, improvement, leasing, operation, mortgage
and disposition of personal property and real property.
2.4 Powers. The Company may carry on any lawful business, purpose or
activity permitted by the Act and shall possess and may exercise all the powers
and privileges granted by the Act or by any other law or by this Agreement,
together with any powers incidental, necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the Company.
2.5 Duration. The duration of the Company shall be perpetual, unless
dissolved earlier as provided herein.
2.6 Registered Office and Registered Agent. The location of the registered
office and the name of the registered agent of the Company in the State of
Colorado shall be as stated in the Articles of Organization. The registered
office and registered agent of the Company in the State of Colorado may be
changed from time to time by the Board of Directors.
2.7 Principal Office. The principal office of the Company shall be located
at 901 North Highway 59, Marshall, MN 56258, or at such other place(s) within or
without the State of Minnesota as the Board of Directors may determine from time
to time.
2.8 Title to Property; No Agency Power. All Property originally transferred
to or subsequently acquired by or on account of the Company shall be owned by
the Company as an entity. No Member, Director or Unit Holder shall have any
ownership interest in such Property in such Person's individual name or right.
The Company shall hold all of its Property in the name of the Company and not in
the name of any Member, Director or Unit Holder. Subject to the approval by the
Board or the Members when required by this Agreement, title to Property may be
transferred by an instrument of transfer executed by the appropriate officer of
the Company as designated by the Board. No Member, Director or Unit Holder has
the authority, in said Person's capacity as Member, Director or Unit Holder, to
transfer title to Property or bind the Company or the other Members or any one
of them. Only duly authorized officers, directors and agents of the Company
shall have the authority to bind the Company.
2.9 Limited Liability of Members and Directors. Except as otherwise
expressly provided by the Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company. No Member, Director or other
agent of the Company, solely by reason of such status, shall be personally
liable, under a judgment, decree or order of a court, or in any other manner,
for the acts, debts, obligations or liabilities of the Company, whether arising
in contract, tort or otherwise.
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ARTICLE III
MEMBERS
3.1 Membership. There shall be no Members admitted to the Company except as
provided in this Agreement. The name, address, Capital Contribution, and class
of membership of each Member shall be set forth in a membership register
maintained by the Company at its principal office or by a duly appointed agent
of the Company (the "Membership Register"), which shall be modified from time to
time as additional Units are issued and as Units are transferred pursuant to
Article X. Prior to the merger of MCP Colorado into the Company pursuant to the
Transaction Agreement, the Cooperative (or its successors) shall be the only
Member of the Company. From and after the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the membership
interest of the Cooperative (or its successor) in the Company shall be canceled,
and (A) The Class A Members of this Company shall include, (i) initially, the
members of the Cooperative who receive Class A Units from the Cooperative
pursuant to the Transaction Agreement; and (ii) individuals, corporations or
other entities who acquire a minimum of 1,000 Class A Units in a permitted
transfer or in an offering by the Company of additional Class A Units. The Class
B Members of this Company shall include, (i) initially, Archer Daniels Midland
Company, as the transferee of Class B Units from the Cooperative pursuant to the
Transaction Agreement, and (ii) individuals, corporations or other entities who
acquire a minimum of 1,000 Class B Units in a permitted transfer.
The holders of Special Financial Interests shall not be Members of the
Company and shall have no rights other than the rights to distributions
specified in Sections 5.7(a) and 11.3(d) and the corresponding right to income
allocations provided in Section 5.2(i).
3.2 Ownership of Membership Interests.
(a) Minimum Ownership of Units Required. Each Class A Member shall own
not less than 1,000 Class A Units. Each Class B Member shall own not less than
1,000 Class B Units.
(b) Limitation on Ownership of Membership Interests.
(i) Number of Units. No Class A Member shall own more than two
percent (2%) of the total issued and outstanding Class A Units of the Company.
For purposes of this Section 3.2(b), the number of Units owned by any Member
shall include Units owned by the member's spouse, children, parents, or brothers
and sisters, and by any Affiliate of the Member or the Member's spouse,
children, parents or brothers and sisters.
(ii) Competitors. Any Competitor of the Company shall not be eligible
to own Class A Units of the Company.
(c) Company Right to Purchase Units. If (A) any Member holds at any time
less than the minimum number of Units required by Section 3.2(a) or more than
the maximum number of Units permitted under Section 3.2(b), and fails to cure
such violation of this Agreement within one (1) year after notice thereof by the
Company, or (B) any Member is or becomes a Competitor, that Member's voting
rights, if any, shall be suspended as provided in Section 3.14 below and, in
addition, the Company shall have the right (but not the obligation) to purchase,
and the Member shall be required to sell (i) in the case of a violation of
Section 3.2(a), all of the Units owned by such Member, and (ii) in the case of a
violation of Section 3.2(b), that Member's Units in excess of the two percent
(2%) maximum provided for in Section 3.2(b). The purchase price for Units
purchased by the Company under this Section shall be an amount equal to the
Established Value of the Units determined at the time the Company notifies the
Member of the violation and shall be payable, at the Company's option, in one
lump sum or equal installments over a period of five (5) years, with interest at
a rate equal to the interest rate for 91 day U.S. Treasury bills, adjusted
quarterly.
3.3 Classes of Membership. This Company has two (2) classes of Membership.
(a) Class A Membership. Class A Membership (as quantified by the Class A
Units) shall be the voting Membership Interests of the Company.
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(b) Class B Membership. Class B Membership (as quantified by the Class B
Units) shall be non-voting Membership Interests.
3.4 Voting.
(a) Units Required. Each Class A Member owning a minimum of 5,000 Class A
Units shall be entitled to one (1) vote with respect to any matter to be
determined by the Members under this Agreement or the Act, regardless of the
number of Units owned by such Class A Member. Any Class A Member who is in
default of any of its obligations under this Agreement shall not be entitled to
vote on any matter during the period of such default. When determining the
aggregate number of Units held by a Member for purposes of this Agreement, the
Units held by any Member who is in default of any obligations under this
Agreement shall be excluded. Each Member other than individual Members shall
designate in writing to the Chairman of the Board of the Company the name of one
(1) individual authorized to act as such Member's representative with respect to
all matters covered by this Agreement, including the right to exercise such
Member's voting rights hereunder. The Company and the other Members shall be
entitled to rely on the authority of the individual so designated. Each Member
may change such Member's representative by written notice to the Chairman of the
Board at such Member's sole discretion.
A member absent from any meeting may submit an absentee vote on any
motion, resolution, or amendment to be acted upon at such meeting, provided an
absentee ballot has been specifically authorized by the Board of Directors. An
absentee vote must be cast on a ballot containing the exact text of the proposed
motion, resolution, or amendment by delivering such ballot to the Secretary at
the principal office of the Company by hand, by United States mail (with postage
prepaid thereon), by facsimile, by overnight courier or by any other reasonable
means, to arrive not later than five (5) days prior to the day of the meeting at
which the vote is taken.
(b) Non-Voting Members. Any Class A Member owning at least 1,000 Class A
Units but less than 5,000 Class A Units as of the date upon which notice of
action to be taken by the Members is mailed to the Members shall be considered a
non-voting member of the Company and shall not be entitled to vote on any
matters reserved to the Members. The Units held by such non-voting members shall
be excluded in determining the aggregate number of Units held by Members.
Notwithstanding that such member is not entitled to vote, the Units in the hands
of the non-voting member shall continue to be subject to all the applicable
provisions of this Agreement, including but not limited to the transfer
restrictions set forth in Article X hereof. In the event a non-voting member
purchases the minimum number of Class A Units required to receive voting rights
under Section 3.4(a) hereof, such member shall be entitled to the voting rights
set forth in Section 3.4(a) without any further action by the Members or the
Board.
3.5 Place of Meetings. Each meeting of the Members shall be held at such
place as the Board of Directors may from time to time designate in writing to
the Members.
3.6 Regular Meetings. Regular meetings of the Members shall be held not
less than once per year, at such time and place as determined by the Board of
Directors; provided however, that if a regular meeting has not been held within
six (6) months after the end of each fiscal year of the Company any Member may
demand a meeting of the members by written demand to the Board of Directors.
3.7 Special Meetings. Special meetings of the Members may be called by the
Board of Directors or twenty percent (20%) of the Class A Members. The business
transacted at a special meeting of the Members is limited to the purposes stated
in the notice of the meeting.
3.8 Notice of Meetings. Written notice of each meeting of the Members,
stating the date, time and place, and in the case of a special meeting, the
purpose of the meeting, shall be given in writing at least fourteen (14) days
and not more than sixty (60) days prior to the meeting to every Member entitled
to vote at such meeting.
3.9 Waiver of Notice. A Member may waive the notice of meeting required
under this Article. A written notice of waiver signed by the Member entitled to
notice is effective whether given before, during or after the meeting.
Attendance by a Member at a meeting is waiver of notice of that meeting,
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unless the Member objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and thereafter
does not participate in the meeting.
3.10 Quorum. The presence (in person or by proxy or mail ballot) of at
least ten percent (10%) of the Class A Members is required for the transaction
of business at a meeting of the Members; provided, however, that a quorum shall
never be more than fifty (50) Class A Members.
3.11 Proxies; Mail Ballots. Voting by proxy or by mail ballot shall be
permitted on any matter if authorized by the Board of Directors.
3.12 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Members of the Company may be taken without a meeting by
written action signed by all of the Class A Members. The written action is
effective when signed by all the Class A Members, unless a different effective
time is provided in the written action.
3.13 Telephonic Meetings. Any regular or special meeting of the Members may
be taken by telephonic or electronic conference or any other means of
communication through which the Members can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Member, and if the Members participating in the conference would be sufficient
to constitute a quorum at a meeting. Participation in a telephonic, electronic,
or other conference of such means constitutes presence at the meeting in person
or by proxy if all the other requirements are met.
3.14 Termination of Membership. A Member's Membership Interest terminates
and such Person ceases to be a Member on and following the occurrence of any of
the following events (each an "Event of Disassociation"):
(a) Complete Transfer. The Member transfers all of the Member's Units,
regardless of whether the transferee(s) is admitted as a substitute Member
pursuant to Section 10.5 of this Agreement;
(b) Dissolution of Member. Any event terminating the existence of any
non-individual Member;
(c) Death of Individual Member. The death of any individual Member;
(d) Withdrawal. The Member resigns by written notice to the Chairman of
the Board; or
(e) Disqualification. The Member holds less than the minimum number of
Units required by Section 3.2(a) or more than the maximum number of Units
permitted by Section 3.2(b) and fails to cure the applicable violation within
one (1) year after notice thereof by the Company.
A Person who has ceased to be a Member shall be considered a non-member
Unit Holder only, and shall have no right to any information or accounting of
the affairs of the Company, shall not be entitled to inspect the books or
records of the Company, shall not be entitled to vote on any matters reserved to
the Members, and shall not have any of the other rights of a Member under the
Act or this Agreement. The Units held by such Unit Holder shall be excluded in
determining the aggregate number of Units held by Members. Notwithstanding that
such Unit Holder is no longer a Member, the Units in the hands of such Unit
Holder shall continue to be subject to all the applicable provisions of this
Agreement, including but not limited to the transfer restrictions set forth in
Article X hereof.
In the event such Unit Holder ceased to be a Member pursuant to Section
3.14(f), such Unit Holder shall be reinstated as a Member without any further
action by the Members or the Board upon a showing to the Board that such Unit
Holder meets the minimum and maximum requirements set forth in Section 3.2.
3.15 Continuation of the Company. The Company shall not be dissolved upon
the occurrence of an Event of Disassociation or any other event which is deemed
to terminate the continued membership of a Member. The Company's affairs shall
not be required to be wound up. The Company shall continue without dissolution.
3.16 No Obligation to Purchase Units. No Member whose membership in the
Company terminates shall have any right to demand or receive a return of such
terminated Member's Capital Contributions.
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Neither the remaining Members nor the Company shall have any obligation to
purchase or redeem the Units of any such terminated Member.
3.17 Advance Consent to Certain Substitute Members.
(a) Substitute Member -- Dissolution. In the event of dissolution of a
non-individual Member, any person who continues the business of a dissolved
Member, or who holds some or all of the Membership Interest of the dissolved
Member, shall be admitted as a substitute Member; provided, however, that such
Person shall not be admitted as a substitute Member unless and until each of the
conditions set forth in Section 10.3 of this Agreement have been satisfied.
(b) Substitute Member -- Death. In the event of the death of an
individual Member, each of the following Persons who holds some or all of the
Membership interest of the deceased Member shall be admitted as a substitute
Member; provided, however, that such Person shall not be admitted as a
substitute Member unless and until each of the conditions set forth in Section
10.3 of this Agreement are satisfied at the time such Person becomes the holder
of all or some of such Membership Interest:
(i) the estate of the deceased Member;
(ii) the surviving joint tenant of the Membership Interest; and
(iii) any distributee of the estate of the deceased Member, including
any trustee(s) of a trust which holds some or all of the
Membership Interest of the deceased Member.
The rights of the estate of a deceased Member shall be exercised by the personal
representative(s) appointed by the court as the personal representative of the
estate of a deceased Member.
(c) Substitute Member. The purpose of this Section 3.17 is that the
voting rights of any Member whose membership is terminated by the dissolution or
death of such Member shall follow the Membership Interest of such Member
notwithstanding such termination, through the automatic substitution of the
holder of all or some of such Membership Interest as a substitute Member. Any
Person who is admitted as a substitute Member under this Section 3.17 shall be
entitled to all of the rights and bound by the obligations of, the Member for
which it is substituted.
3.18 Compliance with Articles of Organization and Operating Agreement. Each
Member of the Company is subject to the terms of the Company's Articles of
Organization, this Agreement, and such other reasonable policies and procedures
as the Board from time to time adopts to implement the terms of this Agreement.
3.19 No Dissenters' Rights. No Member or Unit Holder shall have any
dissenters' rights or appraisal rights or other similar rights as a result of
any merger or consolidation or other action involving the Company approved by
the Class A Members as provided in Section 6.16 hereof.
ARTICLE IV
CAPITAL
4.1 Units. The Company shall be authorized to issue 500,000,000 Units. Of
the total number of Units authorized in this Section 4.1, 350,000,000 Units are
hereby designated as Class A Units, and 150,000,000 Units are hereby designated
as Class B Units.
4.2 Capital Accounts. A Capital Account maintained for such Unit Holder in
accordance with the following provisions:
(a) To each Unit Holder's Capital Account there shall be credited (i)
such Unit Holder's Capital Contributions (determined in the case of the initial
Unit Holders as provided in Section 4.3(a)), (ii) such Unit Holder's
distributive share of Profits and any items in the nature of income or gain
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any Company liabilities assumed by such Unit Holder or which
are secured by any Property distributed to such Unit Holder.
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(b) To each Unit Holder's Capital Account there shall be debited (i) the
amount of money and the Gross Asset Value of any Property distributed to such
Unit Holder pursuant to any provision of this Agreement, (ii) such Unit Holder's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any liabilities of such Unit Holder assumed by the Company
or which are secured by any Property contributed by such Unit Holder to the
Company;
(c) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the Board of Directors shall determine that it is prudent, it may modify
the manner in which the Capital Accounts are maintained, provided that it is not
likely to have a material effect on the amounts distributed to any Person
pursuant to Article XI hereof upon the dissolution of the Company. The Board of
Directors also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Unit Holders and the
amount of capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
4.3 Initial Issuance of Units; Offering of Additional Units.
(a) MCP Colorado will fund the Company on the Closing Date specified in
the Transaction Agreement by contributing all of its assets to the Company in
consideration of the Company's assumption of all of MCP Colorado's liabilities
and other obligations. On the effective date of the merger of MCP Colorado into
the Company, each member of MCP Colorado shall be issued the number and class of
Units that corresponds to the number and class of units such member held in MCP
Colorado. As the result of the foregoing transactions, the Unit Holder shall be
deemed to have made a Capital Contribution in the amount the product of (i) the
number of Units distributed to such Unit Holder, times (ii) the Initial Agreed
Value Per Unit.
(b) From time to time, the Board of Directors may authorize the issuance
and sale by the Company of additional Units (within the limits set forth in
Section 4.1) but only for the purpose of funding costs of expansion of or
necessary maintenance and repairs to the Company's corn wet-milling and related
facilities, funding costs of construction or acquisition of new or existing
facilities or business related or complimentary to the Company's existing
business, funding losses which cannot reasonably be expected to be funded with
future earnings, and/or funding equity contributions to joint ventures involved
in businesses which are related or complimentary to the Company's existing
businesses. In the event the Company offers such additional Units, the Company
shall offer the existing Class A and Class B Members the opportunity to purchase
additional Units so as to permit them to maintain at a constant level their then
existing percentage of the total Class A or Class B Units.
4.4 No Capital Calls. The Company may not require Members to make
additional contributions of capital to the Company for any reason, except that
the Board of Directors may, in its discretion, by resolution require that any
Member to whom a Tax Withholding Obligation is attributable make an additional
contribution to the capital of the Company in an amount equal to such Tax
Withholding Obligation less the amount of any loans for such purpose made to the
Company pursuant to Section 4.9.
4.5 Tax Withholding Obligations. The Board of Directors may, in its
discretion, by resolution require that any Member to whom a Tax Withholding
Obligation is attributable make an additional contribution to the capital of the
Company in an amount equal to such Tax Withholding Obligation less the amount of
any loans for such purpose made to the Company pursuant to Section 4.9.
4.6 Transferee Succeeds to Transferor's Capital Account. Any transfers
permitted by Article X of this Agreement by a Member to a transferee of all or
a part of such Member's Membership Interest in
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the Company shall vest in such transferee (and such transferee shall become a
successor in interest) the interest of the transferor Member's Capital Account
to the extent of the Membership Interest transferred.
4.7 No Right to Return of Contributions. The Members (including terminated
members) shall have no right to the withdrawal or the return of their respective
Capital Contributions except to the extent set forth in Article XI upon
liquidation of the Company.
4.8 No Interest on Capital Contributions. Other than Distributions
authorized pursuant to Article V or Article XI, no Member shall be entitled to
receive any interest or other property on account of the Member's Capital
Contributions to the Company.
4.9 Loans to the Company. A Member may lend money to the Company if
authorized by the Board of Directors. Any such loan shall not be treated as a
Capital Contribution for any purpose and shall not entitle the Member to any
increase in such Member's Membership Interest. The Company shall be obligated to
such Member for the amount of any such loan, with interest thereon at such rate
as may have been agreed upon by the Board of Directors.
4.10 No Repayment Liability. No Member, Director or other Unit Holder shall
be personally liable for the repayment of any Capital Contributions of any other
Unit Holder.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocation of Profits and Losses. After giving effect to the special
allocations set forth in Section 5.2 or Section 5.3, Profits and Losses for any
accounting period shall be allocated to the Unit Holders and shall be divided
among them in proportion to the number of Units held by each as set forth on the
Membership Register.
5.2 Special Allocations. The following special allocations shall be made
in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article V, if there is a net decrease in Company Minimum Gain during any
allocation period, each Unit Holder shall be specially allocated items of
Company income and gain for such allocation period (and, if necessary,
subsequent allocation periods) in an amount equal to such Unit Holder's share of
the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Unit Holder pursuant thereto. The items to be so allocated shall be
determined in accordance with sections 1.704-2(f) (6) and 1.704-2(j) (2) of the
Regulations. This Section 3.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this Article V, if there is a net decrease in Unit Holder Nonrecourse Debt
Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any
allocation period, each Unit Holder who has a share of the Unit Holder
Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt,
determined in accordance with Section 1.704-2(i) (5) of the Regulations, shall
be specially allocated items of Company income and gain for such allocation
period (and, if necessary, subsequent allocation periods) in an amount equal to
such Unit Holder's share of the net decrease in Unit Holder Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i) (4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Unit Holder pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections 1.704-2(i)
(4) and 1.704-2(j) (2) of the Regulations. This Section 5.2(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i) (4) of
the Regulations and shall be interpreted consistently therewith.
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(c) Qualified Income Offset. In the event any Unit Holder unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Unit Holder in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of the
Unit Holder as quickly as possible, provided that an allocation pursuant to this
Section 5.2(c) shall be made only if and to the extent that the Unit Holder
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if this Section
5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Unit Holder has a deficit
Capital Account at the end of any allocation period which is in excess of the
sum of (i) the amount such Unit Holder is obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Unit Holder shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 5.2(d) shall be made only if and to the
extent that such Unit Holder would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article V have been
made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any allocation
period shall be specially allocated to the Unit Holders in proportion to their
respective Units held.
(f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse
Deductions for any allocation period shall be specially allocated to the Unit
Holder who bears the economic risk of loss with respect to the Unit Holder
Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Unit Holder in complete
liquidation of such Unit Holder's interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Unit Holders in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to
whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Units. Any income, gain,
loss or deduction realized as a direct or indirect result of the issuance of
Units by the Company shall be allocated among the Unit Holders so that, to the
extent possible, the net amount of such items, together with all other
allocations under this Agreement to each Unit Holder shall be equal to the net
amount that would have been allocated to each such Unit Holder if the items had
not been realized.
(i) Allocations Relating to Special Financial Interests. If a
distribution is made to a holder of a Special Financial Interests under Section
5.7(a) or 11(d), a corresponding amount of income, gain, gross receipts or gross
sales proceeds, as determined by the Board of Directors, shall be allocated to
such holder.
5.3 Curative Allocations. The allocations set forth in Sections 5.2(a)
through 5.2(g) and 5.4 (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations. It is the intent of the Unit
Holders that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section 5.3.
Therefore, notwithstanding any other provision of this Section 3 (other than the
Regulatory Allocations), the Board of Directors shall make such offsetting
special allocations of Company income, gain, loss or deduction in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Unit Holder's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Unit Holder would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 5.1 and 5.2(h).
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5.4 Loss Limitation. Losses allocated pursuant to Section 5.1 hereof shall
not exceed the maximum amount of Losses that can be allocated without causing
any Unit Holder to have an Adjusted Capital Account Deficit at the end of any
allocation period. In the event some but not all of the Unit Holders would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 5.1 hereof, the limitation set forth in this Section 5.4
shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable
to any Unit Holder as a result of such limitation shall be allocated to the
other Unit Holders in accordance with the positive balances in such Unit
Holder's Capital Accounts so as to allocate the maximum permissible Losses to
each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Board of
Directors using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Unit Holders are aware of the income tax consequences of the
allocations made by this Article 5 and hereby agree to be bound by the
provisions of this Article 5 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Unit Holder's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a) (3), the Unit Holders' interests in Company
profits are in proportion to their Units held.
To the extent permitted by Section 1.704-2(h) (3) of the Regulations, the
Company shall endeavor to treat distributions as having been made from the
proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to
the extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Unit Holder.
5.6 Tax Allocations. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss, and deduction with respect to any
Property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Unit Holders so as to take account of any
variation between the adjusted basis of such Property to the Company for federal
income tax purposes and its initial Gross Asset Value using such allocation
method as may be provided by Regulations and selected by the Board of Directors.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Board of Directors in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Unit Holder's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
5.7 Distributions. Cash shall be distributed in the amounts and at such
times as the Board may determine in its discretion; provided, however, that the
declaration and making of any distribution shall in all instances be limited by
applicable provisions of the Act. Subject to such limitation, the Board shall
endeavor to cause the Company to make cash distributions at such times and in
such amounts as will permit the Unit Holders to make timely payment of income
taxes payable with respect to ownership of Units. Distributions shall be in such
amounts as the Board determines is not required to be retained by the Company to
meet the reasonably foreseeable cash requirements and needs of the business and
activities of the Company and to establish an adequate reserve for the payment
of Company liabilities and contingencies. Distributions of cash or other
property hereunder shall be made as follows:
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(a) In the sole discretion of the Board of Directors, distributions may
be made prorata to the holders of Special Financial Interests in any amount up
to the stated amount thereof provided that the aggregate amount of such
distributions shall not exceed the aggregate stated amount of all Special
Financial Interests.
(b) Except as otherwise provided in Section 5.7(a), to the Unit Holders
to be divided among them in proportion to the number of Units held by each Unit
Holder.
(c) Any distribution may be made subject to offset for any debt or other
amount owed by the Unit Holder or the holder of a Special Financial Interest to
the Company.
For purposes of determining those Unit Holders entitled to receive
distributions pursuant to this Section 5.7, the Board of Directors may fix in
advance a record date which shall be the first day of any calendar month
following the calendar month in which the Board of Directors declares the
distribution. If no such record date is fixed by the Board, the record date
shall be the first day of the calendar month in which the distribution is to
paid. Notwithstanding the foregoing, distributions made with respect to Units
that are the subject of a Transfer shall be made in accordance with Section 10.6
hereof and distributions made with respect to additional Units issued by the
Company shall be made in accordance with Section 10.6 as if such additional
Units had been the subject of a Transfer.
5.8 Tax Withholding Obligations Constitute a Distribution. Any Tax
Withholding Obligation which is withheld by the Company shall constitute a
distribution of such amount by the Company to the Unit Holder to whom such Tax
Withholding Obligation is attributable.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Board of Directors. Except as otherwise provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Board of Directors as provided herein. Prior to the merger of MCP Colorado into
the Company pursuant to the Transaction Agreement, the Board of Directors shall
consist of the individuals identified as such in the Articles of Organization.
At the effective time of the merger of MCP Colorado into the Company pursuant to
the Transaction Agreement, the Board of Directors shall consist of the Directors
specified in the Transaction Agreement. Thereafter, the Board of Directors shall
consist of twenty-four (24) Directors, who shall be elected by the Class A
Members in accordance with this Article.
6.2 Qualifications of Directors. All Directors elected by the Class A
Members shall be natural persons and must be Class A Members or an elected or
appointed representative of a Class A Member which is other than a natural
person.
6.3 Election of Directors. At each Annual Meeting of the Members, elections
shall be held to fill all vacancies on the Board of Directors. Class A Members
may vote by mail ballot for directors, provided a mail ballot has been
specifically authorized by the Board of Directors. Directors shall be elected
for staggered terms of three (3) years and until a successor is elected and
qualified.
6.4 Removal of Directors. The Board of Directors or any individual director
may be removed from office, with cause, by a vote of a majority of the Class A
Members from the district that elected the director that are present in person
or by mail ballot, and that are entitled to vote at the meeting of the Class A
Members at which said removal of directors is considered. In case any one (1) or
more directors be so removed, successor directors shall be elected at the same
meeting. Such successor directors shall be from the same district or districts
as the director or directors so removed. Notice of a meeting at which any Class
A Members will be voting to remove a director must state removal of directors as
an item to be voted upon at the meeting.
6.5 Vacancies. Whenever a vacancy occurs on the Board of Directors, other
than from expiration of a term of office or removal from office, a majority of
the remaining Directors shall appoint a Member
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from the same district to fill the vacancy until the next Annual Meeting of the
Class A Members, at which time the Members may elect a new Director to fill the
vacancy for the remainder of the term of the vacant Directors.
6.6 Annual Meeting. An annual organizational meeting of the Board of
Directors shall be held within thirty (30) days following each Annual Meeting of
the Class A Members for the purpose of the election of the board officers for
the ensuing year, and to transact such other business as may properly come
before the meeting.
6.7 Regular Meetings. A regular meeting of the Board of Directors shall be
held at such frequency and at such time and place as the Board of Directors may
determine.
6.8 Special Meetings. A special meeting of the Board of Directors shall be
held whenever called by the Chairman or, during his or her absence, by the Vice
Chairman, on forty-eight (48) hours' notice to each Director personally, or by
mail. Special meetings shall be called by the Chairman or Secretary in like
manner and on like notice on the written request of any Director. The purpose of
a special meeting need not be specified in the notice of the meeting. Notice of
any special meeting may be waived by attendance at a meeting, except when a
Director attends a meeting and objects to the transaction of business, or by a
waiver of notice signed before, during, or after the meeting.
6.9 Quorum, Voting. A majority of the Directors in office shall constitute
a quorum necessary to the transaction of business at any annual organizational
meeting, regular meeting, or special meeting of the Board of Directors, but if
less than a quorum is present, those Directors present may adjourn the meeting
from time to time until a quorum shall be present. All questions shall be
decided by a vote of a majority of the Directors present at a meeting.
6.10 Executive Committee. The Board of Directors may designate three (3) or
more Directors, one of whom shall be the Chairman of the Board, to constitute an
Executive Committee. The Board of Directors may elect other Directors as
alternative members of the Executive Committee. To the extent determined by the
Board of Directors, the Executive Committee shall have and exercise the
authority of the Board of Directors in the direction of the Company; provided,
however, that the Executive Committee shall not have the powers of the Board of
Directors in regard to apportionment or distribution of cash, election of
officers, filling vacancies on the Board of Directors, and recommending
amendments to this Agreement. The Executive Committee shall act only in the
interval between meetings of the Board of Directors, and shall be subject at all
times to the control and direction of the Board of Directors. Copies of the
minutes of each Executive Committee meeting shall be mailed to all directors
within seven (7) days following such meeting.
6.11 Compensation. The compensation of the Board of Directors shall be
determined by resolution of the Board of Directors, which shall be presented for
approval to the Class A Members at any Annual Meeting or special meeting, and
when so determined shall be continuing until altered or amended. Board officers
shall be entitled to reimbursement for actual expenses incurred in attending
Board of Directors meetings or in conducting other business of the Company. Such
expense accounts shall be approved by officers of the Board of Directors.
6.12 Number of Districts. The territory in which the Class A Members are
located shall be divided into eight districts. The boundaries of such districts
shall be defined without dividing counties, and the number of Directors
representing each district shall be approximately proportionate to the number of
Class A Members located in that district. Each district shall be represented by
two or more Directors, who shall be elected at the Annual Meeting, as provided
in Section 6.3.
6.13 Districting Committee. Periodically, the Board of Directors may
appoint a Districting Committee. The Districting Committee shall review the
boundaries of the districts, the number of Class A Members located in each
district, and the number of Directors representing each district. The
Districting Committee shall then recommend any changes to said boundaries that
are necessary to maintain equality of representation among such districts.
The boundaries of the districts, the number of Class A Members located in
each district, and the number of Directors representing each district shall be
subject to review by the Districting Committee
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at least every three years. The recommendations of the Districting Committee may
be accepted, rejected, or modified by the Board of Directors. Rather than
appointing a Districting Committee, the Board of Directors may delegate the
duties, powers, rights, and responsibilities described in this Section 6.13 to
any existing committee of the Board of Directors.
6.14 Counties and Districts. Initially, the counties in each of the eight
districts shall be as follows:
(a) District One. District One shall include the following counties in
Minnesota: Anoka, Big Stone, Chisago, Clay, Crow Wing, Dakota, Douglas, Grant,
Hennepin, Kanabec, Kandiyohi, Mahnomen, Meeker, Mille Lacs, Morrison, Norman,
Otter Tail, Pennington, Polk, Pope, Ramsey, Red Lake, Sherburne, Stearns,
Stevens, Swift, Todd, Traverse, Wadena, Washington, Wilkin, and Wright.
(b) District Two. District Two shall include the following counties in
Minnesota: Blue Earth, Carver, Dodge, Faribault, Fillmore, Freeborn, Goodhue, Le
Sueur, McLeod, Mower, Nicollet, Olmsted, Renville, Rice, Scott, Sibley, Steele,
Wabasha, and Waseca.
(c) District Three. District Three shall include Brown County, Redwood
County, and Watonwan County in Minnesota.
(d) District Four. District Four shall include Chippewa County and Lac
Qui Parle County in Minnesota.
(e) District Five. District Five shall include Lincoln County and Yellow
Medicine County in Minnesota, and shall also include the following counties in
South Dakota: Beadle, Bon Homme, Brookings, Brown, Charles Mix, Clark, Clay,
Codington, Deuel, Grant, Hamlin, Kingsbury, Lake, Lincoln, McCook, Miner,
Minnehaha, Moody, Spink, Turner, and Yankton.
(f) District Six. District Six shall include Lyon County in Minnesota.
(g) District Seven. District Seven shall include the following counties
in Minnesota: Cottonwood, Jackson, Martin, Murray, Nobles, Pipestone, and Rock.
District Seven shall also include the following counties in Iowa: Cerro Gordo,
Clay, Chickasaw, Dickinson, Emmet, Lyon, Mitchell, Osceola, Sioux, and
Winnebago.
(h) District Eight. District Eight shall include all of the counties in
Nebraska, and shall also include the following counties in Iowa: Carroll,
Crawford, Davis, Delaware, Dubuque, Fremont, Harrison, Ida, Linn, Louisa, Page,
Pottawattamie, Shelby, Story, and Webster.
If a situation arises where a Class A Member is located in a county or
state which is not designated as part of the any of the eight districts, then
the Board of Directors may add that county or state to whichever of the
districts the Board of Directors determines is most logical, in its sole
discretion, and may notify the affected Member of its decision. The Board of
Directors may take this action without the need for any additional amendments to
this Agreement. The designation of new counties to existing districts by the
Board of Directors under these circumstances shall be reviewed by the
Districting Committee when it is next appointed.
6.15 Directors and Districts. Initially, the number of directors
representing each district shall be as follows:
(a) District One shall be represented by three directors.
(b) District Two shall be represented by three directors.
(c) District Three shall be represented by three directors.
(d) District Four shall be represented by two directors.
(e) District Five shall be represented by three directors.
(f) District Six shall be represented by two directors.
(g) District Seven shall be represented by three directors.
(h) District Eight shall be represented by five directors.
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6.16 Board Actions Requiring Approval of Class A Members. The Board may not
authorize or approve the following actions without the affirmative vote or prior
consent of sixty-six and two-thirds percent (66.67%) of the Class A Members
voting in person, by proxy or by mail ballot at a duly called Members meeting:
(a) Any amendment of this Agreement or the Articles of Organization of
the Company;
(b) Approve any merger, consolidation, share or interest exchange, or
sale of all or substantially all of the assets of the Company (other
than the merger contemplated in the Transaction Agreement and a
merger of a wholly-owned subsidiary with and into the Company in
which the Company is the surviving entity);
(c) Voluntarily cause the dissolution of the Company; and
(d) Authorize any transaction, agreement or action on behalf of the
Company that is not related or complimentary to the Company's
existing business or would make it impossible for the Company to
carry on the primary business of the Company.
6.17 Board Actions Requiring Approval of Class B Members. Neither the Board
nor the Class A Members may authorize or approve the following actions without
the prior consent of the holders of sixty-six and two-thirds percent (66.67%) of
the Class B Units:
(a) Make any material change in the principal business of the Company;
(b) Sell, lease, liquidate, exchange, dispose of or otherwise transfer
substantially all of the assets of the Company; or
(c) Embark upon any capital expenditure project that would involve the
expenditure by the Company of any amount in excess of Two Hundred
and Fifty Thousand Dollars ($250,000.00).
Holders of Class B Units shall not unreasonably withhold any consent
required of it pursuant to this Section 6.17. For purposes of assessing the
reasonableness of the withholding by any holder of Class B Units of consent
hereunder, reference shall be made to the viewpoint of a lender or passive
investor that occupies the position of sole holder of the Class B Units.
6.18 Absent Directors. A Director of the Company may give advance written
consent or opposition to a proposal to be acted upon at a Board meeting. If the
Director is not present at the meeting, consent or opposition to a proposal does
not constitute presence at the meeting for purposes of determining existence of
a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
Director has consented or objected.
6.19 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Directors may be taken without a meeting by written action
signed by all of the Directors. The written action is effective when signed by
all the Directors, unless a different effective time is provided in the written
action.
6.20 Telephonic Meetings. Any regular or special meeting of the Directors
may be taken by telephonic or electronic conference or any other means of
communication through which the Directors can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Director, and if the Directors participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic,
electronic, or other conference of such means constitutes presence at the
meeting in person if all the other requirements are met.
ARTICLE VII
DUTIES OF DIRECTORS
7.1 General Powers. The Board of Directors shall direct the business and
affairs of the Company, and shall exercise all of the powers of the Company
except such as are by this Agreement conferred
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upon or reserved to the Members. The Board of Directors shall adopt such
policies, rules, regulations, and actions not inconsistent with law or this
Agreement as it may deem advisable.
7.2 Employment of President and Chief Executive Officer. The Board of
Directors shall select and employ a President and Chief Executive Officer and
fix the compensation of such President and Chief Executive Officer. The Board of
Directors may terminate the employment of the President and Chief Executive
Officer with or without cause at any time, unless an enforceable written
contract between the Company and the President and Chief Executive Officer
provides otherwise.
7.3 Bonds and Insurance. The Board of Directors shall require the President
and Chief Executive Officer and all officers, agents, and employees charged by
the Company with responsibility for the custody of any of its funds or property
to give adequate bonds. Such bonds, unless cash security is given, shall be
furnished by a responsible bonding company and approved by the Board of
Directors, and the cost thereof shall be paid by the Company. The Company shall
provide for the adequate insurance of the property of the Company, or property
which may be in the possession of the Company, or stored by it, and not
otherwise adequately insured, and in addition adequate insurance covering
liability for accidents to all employees and the public.
7.4 Accounting System and Audit. The Board of Directors shall cause to be
installed and maintained an adequate system of accounts and records. At least
once in each year the books and accounts of the Company shall be audited by an
independent auditing firm, and the report of such audit shall be made at the
next Annual Meeting of the Class A Members.
7.5 Agreements with Members. The Board of Directors and such duly
authorized officers shall have the power to carry out all agreements of the
Company with its Members in every way advantageous to the Company representing
the Members collectively.
7.6 Depository. The Board of Directors may direct management to approve one
or more banks or other financial institutions to act as depositories of the
funds of the Company, and to determine the manner of receiving, depositing, and
disbursing the funds of the Company, the form of checks, and the person or
persons by whom they shall be signed, with the power to change such banks and
the person or persons signing such checks and the form thereof at will.
ARTICLE VIII
BOARD OFFICERS; PRESIDENT AND CHIEF EXECUTIVE OFFICER
8.1 Election of Board Officers. At each Annual Meeting of the Board of
Directors, the Board of Directors shall elect the principal officers of the
Board, which principal officers shall be a Chairman, a Vice Chairman, a
Secretary and such other Board officers as may be established by the Board. The
Chairman, Vice Chairman and Secretary must be Directors of the Company. A board
officer may be removed by the Board of Directors whenever in its judgment the
best interests of the Company will be served thereby. If any vacancy shall occur
among the principal officers of the Board, it shall be filled by the Board of
Directors at its next regular meeting following the vacancy.
8.2 Duties of Chairman. The Chairman shall:
(a) preside over all meetings of the Members of the Company, the
Executive Committee, and the Board of Directors;
(b) call special meetings of the Board of Directors;
(c) perform all acts and duties usually performed by an executive and
presiding officer; and
(d) sign all membership certificates and such other papers of the Company
as the Chairman may be authorized or directed to sign by the Board of Directors;
provided, however, that the Board of Directors may authorize any person to sign
any or all checks, contracts, and other documents in writing on behalf of the
Company. The Chairman shall perform such other duties as may be prescribed by
this Agreement or by the Board of Directors.
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8.3 Duties of Vice Chairman. In the absence or disability of the Chairman,
the Vice Chairman shall perform the duties of the Chairman.
8.4 Duties of Secretary. The Secretary shall attend all meetings of the
Company and the Board of Directors, all meetings of the Executive Committee, and
all meetings of the Members, and shall record all votes and keep minutes of all
proceedings. The Secretary shall keep a complete record of all meetings of the
Company and of the Board of Directors. The Secretary shall sign such papers
pertaining to the Company as he or she may be authorized or directed to sign by
the Board of Directors. The Secretary shall serve all notices required by law
and by this Agreement, including notices of meetings, and shall make a full
report of all matters and business pertaining to his or her office to the
Members at the Annual Meeting. The Secretary shall cause to be kept and
maintained complete membership records, shall make all reports required by law,
and shall perform such other duties as may be required of him or her by the
Company or the Board of Directors. An Assistant Secretary, if any, shall perform
the duties of the Secretary during the absence or disability of the Secretary.
8.5 Duties of President and Chief Executive Officer. The President and
Chief Executive Officer shall be employed by the Board of Directors as an
officer of the Company and shall perform such duties as the Board of Directors
may prescribe, and shall exercise such authority as the Board of Directors may
from time to time vest in him or her. Under the direction of the Board of
Directors, the President and Chief Executive Officer shall have general charge
of the ordinary and usual business operations of the Company, including the
purchasing, marketing and handling of all products and supplies handled by the
Company.
The President and Chief Executive Officer shall cause all money belonging
to the Company that comes into his or her possession in the name of the Company
to be deposited in a bank or other financial institution selected by the Board
of Directors, and if authorized to do so by the Board of Directors, shall make
all disbursements by check or electronic transfer of funds therefrom for the
ordinary and necessary expenses of the business in the manner and form
prescribed by the Board of Directors. On the appointment of his or her
successor, the President and Chief Executive Officer shall deliver to said
successor all money and property belonging to the Company which he or she has in
his or her possession or over which he or she has control.
The President and Chief Executive Officer shall be required to maintain the
Company's records and accounts in such a manner that the true and correct
condition of the Company's business may be ascertained therefrom at any time.
The President and Chief Executive Officer shall render annual and periodic
statements in the form and in the manner prescribed by the Board of Directors,
and shall carefully preserve all books, documents, correspondence, and records
of whatever kind pertaining to the business of the Company that may come into
his or her possession.
The President and Chief Executive Officer shall employ, supervise, and
dismiss any or all officers or employees of the Company, except agents or
counsel specifically employed by the Board of Directors. The President and Chief
Executive Officer may designate employees of the Company as various vice
presidents or assistant secretaries of the Company and define their duties and
responsibilities as such officers of the Company.
8.6 Compensation. The salary, compensation, and other benefits of the
President and Chief Executive Officer and all Board officers shall be fixed by
the Board of Directors; provided, however, that no officer who is a director may
take part in the vote on his or her own compensation.
8.7 Special Powers. The President and Chief Executive Officer or any
officer may be vested by the Board of Directors with any power and charged with
any duty not contrary to law or inconsistent with this Agreement.
ARTICLE IX
REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS
9.1 Required Records. The Board shall cause to be maintained the required
records of the Company in a complete and accurate manner. The Board shall cause
to be maintained the required
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records on a current basis, including, without limitation, the recording of any
transfer of all or part of a Member's Membership Interest pursuant to Article X
hereof in the required records as soon as the Board receives notice of such
transfer. The Board shall conspicuously note in the required records that the
Members' Membership Interests are governed by this Agreement and that this
Agreement contains a restriction on the assignment of Membership Interests. The
required records at all times shall be kept at the principal executive office of
the Company or such other place or places within the United States as the Board
may determine. Each Member shall have access to and may inspect and copy the
required records as provided to the extent allowable and in accordance with the
Act. The costs of such inspection and copying shall be borne by the inspecting
Member.
9.2 Books of Account. The Board shall cause to be kept complete and
accurate accounts of all transactions of the Company in proper books of account
and shall enter or cause to be entered therein a full and accurate account of
each and every Company transaction in accordance with accounting principles and
methods as determined by the Board with the advice of the Company's accountants.
The books of account of the Company shall be closed and balanced as of the end
of each fiscal year. The books of account and other records of the Company shall
at all times be kept at the principal executive office of the Company or such
other place or places within the United States as the Board may determine. Each
Member shall have access to and may inspect and copy any of such books and
records at all reasonable times and in accordance with the Act. The costs of
such inspection and copying shall be borne by the inspecting Member.
9.3 Tax Characterization, Returns, Elections and Information. The Members
acknowledge that the Company will be characterized as a partnership for federal
income tax purposes. Management shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state or
local tax returns required to be filed by the Company and, except as otherwise
provided in any Board resolution, shall have complete discretion and authority
concerning any tax election required or permitted to be made by the Company.
Notwithstanding the preceding sentence, the Company shall not make an election
under Section 754 of the Code unless the Board shall determine by resolution
that the tax benefits made available to affected transferee Members as a result
of such an election are likely to be of sufficient magnitude to justify the
increased cost and administrative burden of accounting for the resulting basis
adjustments under Sections 734(b) and 743(b) of the Code.
Management shall deliver or cause to be delivered to each Member within a
reasonable time after the end of each fiscal year or, if applicable, after the
extended due date of the Company's tax return, such information concerning the
Company as is necessary or appropriate to permit each Member to properly
complete any federal, state or local income tax return in which Members must
include items attributable to the Company. Management shall endeavor to provide
sufficient information from time to time during the year as may be appropriate
to permit the Members to pay federal, state and local estimated taxes.
9.4 Tax Matters Partner; Tax Audit Costs. The Tax Matters Partner shall be
the person so designated in accordance with Sections 6221-33 of the Code and
related Treasury Regulations and such person shall assume the responsibilities
assigned to tax matters partners therein. The Board may designate the Tax
Matters Partner in accordance with said sections and regulations or, if no such
designation is made, the Tax Matters Partner shall be the Chairman of the Board
or, if such Chairman is not a Member, the Director who is a Member and who,
among the other Directors who are members, individually owns the largest number
of Units.
If on advice of counsel the Tax Matters Partner determines that it is in
the best interest of the Members that the final results of any administrative
proceeding be appealed by the institution of legal proceedings, the Tax Matters
Partner is hereby authorized to commence such legal proceedings in such forum as
the Tax Matters Partner, on advice of counsel, determines to be appropriate. In
the event the Tax Matters Partner selects a forum for appeal in which the Unit
Holders are required to deposit a proportionate share of any disputed tax before
making such appeal, the Tax Matters Partner must obtain the approval of the
Board and the consent of Members owning a majority of the Voting Interests. If
such approval and consent is obtained, each of the Unit Holders will be required
to deposit and pay such Unit Holder's proportionate share of such disputed tax
before participating in such appeal. The Unit Holders
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acknowledge that such deposit under current law does not earn interest and that
the failure to so deposit may preclude a Unit Holder from pursuing any other
sort of appeal by court action.
The Tax Matters Partner shall not be liable to any other Unit Holder for
any action taken with respect to any such administrative proceedings or appeal
so long as the Tax Matters Partner is not grossly negligent or guilty of willful
misconduct. Any costs paid or incurred by the Tax Matters Partner in connection
with its activities in such capacity shall be reimbursed by the Company.
Each Unit Holder acknowledges that any cost a Unit Holder may incur in
connection with an audit of such Unit Holder's income tax return, including an
audit of such Unit Holder's investment in this Company, is such Unit Holder's
sole responsibility and obligation. The Company, the Board, the officers and the
Tax Matters Partner shall not be liable to any Unit Holder for reimbursement or
sharing of any such costs.
ARTICLE X
TRANSFER OF MEMBER INTERESTS
10.1 Restrictions on Transfer.
(a) No Person shall Transfer any Unit if, in the determination of the
Board, such Transfer would cause the Company to be treated as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code.
(b) No Person shall Transfer any Unit except with the prior consent of
the Board of Directors.
(c) Any Transfer of a Unit that would result in a violation of the
restrictions in Section 10.1(a) or (b) shall be null and void, and the intended
transferee shall acquire no rights in such Unit.
10.2 Conditions Precedent to Transfers. The Board of Directors may not
recognize any Transfer of Units unless and until the Company has received:
(a) an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that such Transfer
may be lawfully made without registration or qualification under applicable
state and federal securities laws, or such Transfer is properly registered or
qualified under applicable state and federal securities laws;
(b) such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the opinion of
counsel to the Company to effect such Transfer, except that in the case of a
Transfer of Units involuntarily by operation of law, the Transfer shall be
confirmed by presentation of legal evidence of such Transfer, in form and
substance satisfactory to the Company;
(c) the transferor's Certificate of Membership Interest;
(d) the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the interest
transferred, and any other information reasonably necessary to permit the
Company to file all required federal and state tax returns and other legally
required information statements or returns;
(e) evidence satisfactory in form and substance to the Board that the
transferee meets the minimum and maximum Unit ownership requirements set forth
in Section 3.2 of this Agreement;
(f) in the case of a Transfer of Class A Units subject to a 1996 Loss
Payable, full payment in cash to offset such Member's 1996 Loss Payable; and
(g) in the case of a Transfer of Class B Units, a written agreement
executed by the transferee to the effect that transferee is not entitled to the
benefits of the Stockholder Agreement between the Cooperative and Archer Daniels
Midland Corporation dated August 27, 1997;
provided, however, the Board may waive any or all of the conditions stated
above. In addition, the Board may adopt such other conditions on the Transfer of
Units as it deems appropriate.
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10.3 Substitution of Member. A transferee of Units shall be admitted as a
substitute Member only if (i) the provisions of this Article have been met, (ii)
the transferee executes an instrument satisfactory to the Company accepting and
adopting the terms and provisions of this Agreement and (iii) the transferor
pays all reasonable expenses incurred by the Company in connection with the
Transfer and, if applicable, the transferee's admission as a new Member. The
admission of a transferee as a substitute Member shall not result in the release
of the Member who transferred the Unit from any liability that such Member may
have to the Company.
10.4 Effective Date of Transfer. Any Transfer of a Unit shall be deemed
effective as of the day of the month and year (i) which the Transfer occurs (as
reflected by the form of Assignment) and (ii) the transferee's name and address
and the nature and extent of the Transfer are reflected in the records of the
Company. The name, address, Capital Contributions, class and number of Units
held by each Member shall be set forth on the Membership Register, which shall
be modified from time to time as Transfers occur or as additional Units are
issued pursuant to the provisions of this Agreement. The appropriate Company
records shall be conspicuously noted to prevent the Transfer of Units otherwise
than in accordance with this Article X. Notwithstanding the foregoing, the
effective date of a Transfer for purposes of allocation of Profits and Losses
and for distributions shall be determined pursuant to Section 10.5. Any
transferee of a Unit shall take subject to the restrictions on transfer imposed
by this Agreement.
10.5 Distributions and Allocations in Respect to Transferred Interest. If
any Unit is transferred during any accounting period in compliance with the
provisions of this Article X, then Profits and Losses, each item thereof, and
all other items attributable to such Units for such accounting period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during such accounting period in accordance with
Code Section 706(d). Solely for purposes of making such allocations and
distributions, the Company shall use the interim closing of the books method and
the convention that recognizes such Transfer as of the beginning of the calendar
month following the calendar month in which the notice, documentation and
information requirements of this Article X have been substantially complied
with. All distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board shall have the power and authority to adopt another reasonable method
and/or convention with respect to such allocations and distributions; provided,
that reasonable notice of any change is given to the Members in advance of the
change. Neither the Company, the Board, any Director nor any Member shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 10.5, whether or not the Board or any Director or the
Company or any Member has knowledge of any Transfer of ownership of any interest
in the Company.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Liquidating Events. The Company shall be dissolved and commence
winding up and liquidating upon the affirmative vote of at least sixty-six and
two-thirds percent (66.67%) of the Class A Members voting at a duly called
meeting.
As further provided in Article III herein, the dissociation and termination
of the continued membership of a Member shall not cause the dissolution of the
Company and shall not require the Company's business to be wound-up, so long as
the Company has the minimum number of Members required under applicable state
law within ninety (90) days following the Event of Dissociation.
11.2 Winding Up.
(a) Notice of Dissolution. As soon as possible following the occurrence
of a Liquidating Event, the appropriate representative of the Company shall
execute a notice of dissolution in such form as shall be prescribed by the
Colorado Secretary of State, setting forth the information required under the
Act, and shall file same with the Colorado Secretary of State's office.
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(b) Winding Up of Business. Upon filing a notice of dissolution with the
Colorado Secretary of State, the Company shall cease to carry on its business,
except insofar as may be necessary for the winding up of its business, but its
separate existence shall continue until a certificate of termination has been
issued by the Secretary of State or until a decree dissolving the Company has
been entered by a court of competent jurisdiction.
11.3 Distributions Upon Dissolution. Upon dissolution, the business of the
Company shall be wound up, the Directors shall take full account of the Company
assets and liabilities, and all assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. If any assets are not sold,
gain or loss shall be allocated to the Unit Holders in accordance with Article V
as if such assets had been sold at their fair market value at the time of the
liquidation. If any assets are distributed to a Unit Holder, rather than sold,
the distribution shall be treated as a distribution equal to the fair market
value of the assets at the time of the liquidation. The assets of the Company
shall be applied and distributed in the following order of priority:
(a) First, to the payment of all debts and liabilities of the Company,
including all fees due the Directors, and including any loans or advances that
may have been made by the Members to the Company, in the order of priority as
provided by law;
(b) Second, to the establishment of any reserves deemed necessary by the
Directors or the Person winding up the affairs of the Company for any contingent
liabilities or obligations of the Company; and
(c) Third, to the Unit Holders, ratably in proportion to the credit
balances in their respective Capital Accounts after and including all
allocations to the Unit Holders and holders of Special Financial Interests under
Article V herein, including the allocation of any income, gain or loss from the
sale, exchange or other disposition (including a deemed sale pursuant to this
Section 11.3) of the Company's assets, in an amount equal to value of their
units as established by the Board of Directors;
(d) Fourth, to the holders of Special Financial Interests in proportion
to their stated amounts in amounts equal to the stated amount of such interests
less any previous distributions made with respect to such Interests; and
(e) Fifth, the balance, if any, to the Unit Holders, ratably in
proportion to the credit balances in their respective Capital Accounts, in an
amount equal to the aggregate credit balances in the Capital Accounts after and
including all allocations to the Unit Holders and holders of Special Financial
Interests under Article V herein, including the allocation of any income, gain
or loss from the sale, exchange or other disposition (including a deemed sale
pursuant to this Section 11.3) of the Company's assets.
11.4 Compliance With Regulations; Deficit Capital Accounts. In the event
the Company is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XI to
the Unit Holders who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit
balance in his Capital Account (after giving effect to all contributions,
distributions and allocations for all allocation periods, including the
allocation period during which such liquidation occurs), such Unit Holder shall
have no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Company or to any other Person for any purpose whatsoever. In the discretion
of the Company, a pro rata portion of the distributions that would otherwise be
made to the Unit Holders pursuant to this Article XI may be:
(a) Distributed to a trust established for the benefit of the Unit
Holders for the purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such trust shall be distributed to
the Unit Holders from time to time, in the reasonable discretion of the trustee,
in the same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the Unit Holders pursuant to Section
11.3 hereof; or
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(b) Withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such withheld amounts
shall be distributed to the Unit Holders as soon as practicable.
11.5 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article XI, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has
occurred, the Property shall not be liquidated, the Company's debts and other
liabilities shall not be paid or discharged, and the Company's affairs shall not
be wound up. Instead, solely for federal income tax purposes, the Company shall
be deemed to have distributed the property in-kind to the Unit Holders, who
shall be deemed to have taken subject to all debts of the Company and other
liabilities all in accordance with their respective Capital Accounts.
Immediately thereafter, the Unit Holders shall be deemed to have recontributed
the property in-kind to the Company, which shall be deemed to have taken subject
to all such liabilities.
11.6 Allocations During Period of Liquidation. During the period commencing
on the first day of the Fiscal Year during which a Dissolution Event occurs and
ending on the date on which all of the assets of the Company have been
distributed to the Unit Holders pursuant to Section 11.3 hereof (the
"Liquidation Period"), the Unit Holders shall continue to share Profits, Losses,
gain, loss and other items of Company income, gain, loss or deduction in the
manner provided in Article V hereof.
11.7 Character of Liquidating Distributions. All payments made in
liquidation of the interest of a Unit Holder shall be made in exchange for the
interest of such Unit Holder in property pursuant to Section 736(b)(1) of the
Code, including the interest of such Unit Holder in Company goodwill.
ARTICLE XII
MEMBERS BOUND BY AGREEMENT
By their purchase or acceptance of Units, the Initial Members and any
Person who is admitted as an additional Member or a substitute Member shall be
subject to and bound by all the provisions of this Agreement, whether or not
such Member executes this Agreement or any other document referring to this
Agreement. However, such Person shall execute and acknowledge any documents and
instruments, in form and substance satisfactory to the Board, as the Board shall
deem necessary or advisable to effect such admission and to confirm the
agreement of the Person being admitted to be bound by all the terms and
provisions of this Agreement. Upon demand by the Board, such Person shall pay
all reasonable expenses in connection with such admission as a Member,
including, without limitation, legal fees and costs of preparation of any
amendment to or restatement of this Agreement, if necessary or desirable in
connection therewith.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES
13.1 Indemnity of Directors, Employees and Other Agents.
(a) To the fullest extent permitted by law, the Company shall indemnify
each Director from and make advances for expenses incurred by the Director in
connection with any claim made against the Director arising from an action or
omission made in good faith or which he or she reasonably believed to be in the
best interests of the Company, or any other such claim to the maximum extent
permitted under the Act, except to the extent the claim for which
indemnification is sought results from an act or omission of the Director
constituting fraud or willful misconduct.
(b) Except as may otherwise be provided in an agreement with an agent or
employee, the Company shall indemnify its employees and other agents who are not
Directors to the fullest extent permitted by law.
(c) Expenses (including legal fees and expenses) incurred by a Director
in defending any claim, demand, action, suit or proceeding subject to subsection
(a) above shall be paid by the Company
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in advance of the final disposition of such claim, demand, action, suit or
proceeding upon receipt of an undertaking (which need not be secured) by or on
behalf of the Director to repay such amount if it shall ultimately be finally
determined by a court of competent jurisdiction and not subject to appeal, that
the Director is not entitled to be indemnified by the Company as authorized
hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties and supersedes any prior agreement or understanding among them
with respect to the subject matter hereof.
14.2 Amendment. This Agreement may not be modified, amended, or
supplemented, without (a) the affirmative vote or prior consent of sixty-six and
two-thirds percent (66.67%) of the Class A Members voting in person, by proxy,
or by mail ballot at a duly called Members meeting (except that the Board may
amend Section 6.17(c) without the consent or approval of any Class A Members),
and (b) in the case of any modification, amendment or supplement which otherwise
modifies or amends Section 6.17 hereof or the last sentence of Section 4.3(b)
hereof, or which otherwise modifies the rights and benefits afforded to the
holders of Class B Units, the prior consent of the holders of sixty-six and
two-thirds percent (66.67%) of the Class B Units.
14.3 Conflict with Articles. In the event of any conflict between the
Articles of Organization and this Agreement, the provisions of this Agreement
shall govern to the extent not contrary to law.
14.4 Certificates of Membership Interest. Units shall be evidenced by
certificates of membership interest. At the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the Company
adopts the certificates of the Cooperative as the Certificates of Membership
Interest of the Company. Upon any Transfer of Units in accordance with Article
X, the Board of Directors will issue a new form of certificate under the
Company's own name (a "LLC Certificate") representing the Units so transferred;
provided, however, that the issuance of LLC Certificates shall not invalidate or
otherwise affect the validity of certificates of the Cooperative representing
outstanding Units owned by the Initial Members. Each LLC Certificate shall bear
a legend referring to the restrictions set forth in Article X.
14.5 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable. This
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement. The
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
14.6 Remedies. The parties agree that in the event of a breach of this
Agreement, the non-breaching party or parties shall be entitled to the remedies
of specific performance and injunctive relief, except to the extent prohibited
by the Act. Such remedies shall be in addition to any other remedies available
at law or in equity with the pursuit of any one or more remedies not being a bar
to the pursuit of other remedies which may be available. The parties further
agree that the breaching party or parties shall pay all reasonable costs,
expenses, and attorneys' fees incurred by the non-breaching party or parties in
pursuing their remedies for a breach of this Agreement.
14.7 Consent and Waiver. No consent under and no waiver of any provision of
this Agreement on any one occasion shall constitute a consent under or waiver of
any other provision on said occasion or on any other occasion, nor shall it
constitute a consent under or waiver of the consented to or waived provision on
any other occasion. No consent or waiver shall be enforceable unless it is in
writing and signed by the party against whom such consent or waiver is sought to
be enforced.
14.8 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the Company, the Members and the Unit
Holders, and their respective successors and assigns.
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No other Person will have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise; provided, however, that the Company shall have
standing to bring an action to recover damages provided for by the Act or to
seek remedies otherwise provided by law in the event of a breach or threatened
breach of this Agreement.
14.9 Notices. All notices, offers, demands, or other communications
required or permitted under this Agreement shall be in writing, signed by the
Person giving the same. Notice shall be treated as given when personally
received or (except in the event of a mail strike) when sent by United States
Mail to a Member or Unit Holder at the address as shown from time to time on the
records of the Company. Any Member or Unit Holder may specify a different
address by written notice to the Company.
14.10 Binding Effect. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Company,
the Members and Unit Holders, parties and their legal representatives, heirs,
administrators, executors, successors and assigns. Members and Unit Holders
shall be bound by and shall be entitled to the benefits of this Agreement by
their purchase or acceptance of Units whether or not they sign this Agreement or
any document referring to this Agreement.
14.11 Necessary Instruments and Acts. The parties covenant and agree that
they shall execute any further instruments and shall perform any acts which are
or may become necessary to effectuate and to carry out the terms and conditions
of this Agreement.
14.12 Number and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
14.13 Interpretation. All references herein to Articles, Sections and
subsections refer to Articles, Sections and subsections of this Agreement. All
Article, Section and subsection headings are for reference purposes only and
shall not affect the interpretation of this Agreement.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all parties. Each party shall become bound by this Agreement immediately upon
signing any counterpart, independently of the signature of any other party.
14.15 Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the internal laws of the
State of Colorado, without regard to its conflicts or choice-of-law rules.
* * * * * * *
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Company and the Cooperative as of the date set forth in
the first paragraph.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
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SCHEDULE A
COMPETITORS
Archer Daniels Midland Company
Cargill, Incorporated
Corn Products Company (Corn Products International, Inc.)
A.E. Staley Manufacturing Company (Tate & Lyle, PLC)
Cerestar USA, Inc.
National Starch and Chemical Company
Penford Products Company (Penford Corporation)
Roquette America, Inc.
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APPENDIX E
SUMMARIZATION LETTER
OF
APPRAISAL OPINION
AMERICAN APPRAISAL ASSOCIATES SUMMARIZATION LETTER PAGE 1
===========================================================================
February 1, 1999
Minnesota Corn Processors
Marshall, Minnesota
In order to assist you, we are providing this summarization letter of our
appraisal report, dated January 26, 1999. All terms and conditions contained in
the report apply fully herein. To understand the procedures followed and the
conclusions reached, the reader is advised to read the report in its entirety.
In accordance with your authorization, we made an investigation and appraisal of
the business enterprise headquartered in MARSHALL, MINNESOTA, and identified to
us as
MINNESOTA CORN PROCESSORS
Our report, intended to comply with the purpose and reporting requirements set
forth by the Uniform Standards of Professional Appraisal Practice ("USPAP") for
a summary appraisal report was prepared for Minnesota Corn Processors ("MCP" or
"the company") regarding their contemplated conversion ("the Contemplated
Transaction") that would restructure the company from a cooperative entity to a
limited liability company ("LLC"). Our opinions are as of September 30, 1998
("the appraisal date"), of the fair market value under the premise of continued
use of (I) the business enterprise of MCP prior to the Contemplated Transaction,
and (ii) the minority common equity value of MCP on a per-share basis
immediately following the consummation of the Contemplated Transaction. These
opinions have been prepared for MCP and its equity holders for tax and corporate
planning purposes. It is entirely inappropriate to use these opinions of value
for any other purpose.
FAIR MARKET VALUE is defined as the estimated amount at which the business
enterprise might exchange between a willing buyer and a willing seller, neither
being under compulsion, each having reasonable knowledge of all relevant facts.
When fair market value is established under the premise of CONTINUED USE, it is
assumed that the
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AMERICAN APPRAISAL ASSOCIATES SUMMARIZATION LETTER PAGE 2
===========================================================================
buyer and the seller would be contemplating retention of the assets at their
present location as part of the current operations. An estimate of fair market
value arrived at under the premise of continued use does not represent the
amount that might be realized from piecemeal disposition of the assets in the
open market or from an alternative use of the assets.
BUSINESS ENTERPRISE is defined as the combination of all tangible assets
(property, plant, and equipment, and normal working capital) and intangible
assets of a continuing business. Alternatively, it is equivalent to the invested
capital of the business; that is, the combination of the value of the
stockholders' equity and long-term debt.
Our appraisal report identifies the property appraised, states the objective and
extent of the appraisal, and presents the conclusion of value. The report
discusses the economic and industry outlook, the history and nature of the
business, an explanation of the valuation techniques employed, and the
conclusion of value. The report contains exhibits on (A) Historical Income
Statement; (B) Historical Balance Sheet; (C) Guideline Company Weighting
Process; (D) Market Approach - Guideline Company Method; (E) Discount Rate
Development; (F) Income Approach - Discounted Cash Flow Method; (G) Valuation of
St. Paul Bank Investment; (H) Valuation of Member Loss Allocation Receivable;
(I) Discount for Lack of Marketability Data; (J) Analysis of Court Cases; (K)
Assumptions and Limiting Conditions; (L) Certificate of Appraiser and a
statement of general service conditions.
At September 30, 1998, MCP was a wet corn milling plant that produced
value-added corn-related products for its cooperative members. The products
produced for sale by MCP include ethanol, cornstarch, 55 high fructose corn
syrup ("55-HFCS"), 42 high fructose corn syrup ("42-HFCS"), and corn syrup.
Co-products ("feeds") consisting of gluten feed, gluten meal, corn germ, and
steepwater are also produced and sold.
The investigation included discussions with MCP's management concerning the
history and nature of the business, its economic status, and its prospects. For
the purpose of preparing the appraisal, we were furnished with audited and
unaudited financial statements, as well as other records, documents, and
forecasts germane to the appraisal. The historical data have been utilized
without further verification as correctly representing the results of the
operation and the financial condition of the enterprise. In addition, a study of
market conditions and an analysis of published information were used to evaluate
the company's past performance and to assess its ability and capacity to
generate future investment returns.
The appraisal investigation included a study of the factors having a bearing on
determining the fair market value. A listing of these factors is contained in
the report. Primary consideration was given to the company's earning capacity
and a comparative evaluation of its financial results with other similar
enterprises.
E-2
<PAGE>
AMERICAN APPRAISAL ASSOCIATES SUMMARIZATION LETTER PAGE 3
===========================================================================
As a result of our study, it is our opinion that as of September 30, 1998, the
fair market value under the premise of continued use of the Minnesota Corn
Processors business enterprise prior to the Contemplated Transaction is
reasonably represented in the amount of SIX HUNDRED ELEVEN MILLION DOLLARS
($611,000,000). On the same date, the fair market value under the premise of
continued use of the minority common equity value of MCP immediately following
the consummation of the Contemplated Transaction is ONE DOLLAR TEN CENTS ($1.10)
per share, based on 195,428,000 shares outstanding.
No investigation was made of the title to or any liability against the interest
appraised. Further, we have not investigated the title to or any liabilities
against the property appraised.
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
E-3
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not applicable.
(c) Report, Opinion or Appraisal. Not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
II-1
<PAGE>
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(e) The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to paragraph (d) immediately preceding, or (ii)
that purports to meet the requirements of Sections 10(a)(3) of the
Securities Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Marshall, State of Minnesota on February 12, 1999.
MINNESOTA CORN PROCESSORS, LLC
/S/ L. DAN THOMPSON
By ------------------------------------
L. Dan Thompson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on February 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- -----------------------------------------------
<S> <C>
/S/ L. DAN THOMPSON President and Chief Executive Officer
-------------------------------------
L. Dan Thompson
/S/ DANIEL H. STACKEN Principal Financial and Accounting Officer and
------------------------------------- Director
Daniel H. Stacken
/S/ JERRY JACOBY Director
-------------------------------------
Jerry Jacoby
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C>
2.1 Plan of Merger by and between Minnesota Processors, Inc. and
Minnesota Corn Processors of Colorado, dated January , 1999.
2.2 Plan of Merger by and between Minnesota Corn Processors Colorado
and Minnesota Corn Processors, LLC, dated January , 1999.
2.3 Transaction Agreement by and among Minnesota Corn Processors, Inc.,
Minnesota Corn Processors Colorado and Minnesota Corn Processors, LLC,
dated January 22, 1999.
3.1 Articles of Organization of Minnesota Corn Processors, LLC, filed
December 10, 1998.*
3.2 Operating Agreement of Minnesota Corn Processors, LLC.
3.3 Articles of Incorporation of Minnesota Corn Processors Colorado, filed December 10, 1998.*
3.4 Amended and Restated Articles of Incorporation of Minnesota Corn Processors
Colorado, filed January 22, 1999.*
3.5 Bylaws of Minnesota Corn Processors Colorado.
5.1 Legal Opinion of Dorsey & Whitney, LLP with respect to the securities
being registered.**
10.1 Transaction Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated July 9, 1997.*
10.2 Stockholder Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated August 27, 1997.*
10.3 Master Equipment Lease Agreement between Fleet Capital Corporation and
Minnesota Corn Processors, Inc., dated April 9, 1998.**
10.4 Firm Sales/Purchase Agreement between Minnesota Corn Processors, Inc. and
Wascana Energy Marketing (U.S.) Inc., dated December 30, 1996.**
10.5 Natural Gas Purchase and Sale Contract between Minnesota Corn Processors,
Inc. and Husky Gas Marketing Inc., dated November 1, 1996.**
10.6 Amended and Restated Secured Credit Agreement among Minnesota
Corner Processors, Inc., Liquid Sugars, Inc., Harris Trust and
Savings Bank and U.S. Bancorp Ag Credit, dated as of November 4, 1998.*
10.7 Note Purchase Agreement dated as of August 26, 1997.*
10.8 Employment Agreement of L. Daniel Thompson, dated August 15, 1997.*
10.9 Employment Agreement of George A. Lamberth, dated November 11, 1997.*
10.10 Form of Management Stock Purchase Option Agreement.*
10.11 Corn Steep Agreement between Minnesota Corn Processors and
Liquid Corn, Inc.*
23.1 Consent of Dorsey & Whitney, LLP (included in the opinion filed as
Exhibit 5.1).
23.2 Consent of American Appraisal Associates.*
23.3 Consent of Clifton Gunderson, LLC.*
23.4 Consent of Doug Finstrom
23.5 Consent Carl Just
23.6 Consent of Duane Adams
23.7 Consent of Howard Dahlager
23.8 Consent of Ken Robinson
23.9 Consent of David Scheibel
23.10 Consent of Steve Lipetzky
23.11 Consent of John Zwach, Jr.
23.12 Consent of Roger Fjerkenstad
23.13 Consent of Donald Lindblad
23.14 Consent of Daniel Dybsetter
23.15 Consent of John Jerzak
23.16 Consent of Dean Buesing
</TABLE>
<PAGE>
<TABLE>
<S> <C>
23.17 Consent of Sandy Ludeman
23.18 Consent of John P. Hennen
23.19 Consent of John Nelson
23.20 Consent of James Gervais
23.21 Consent of Ron Kirchner
23.22 Consent of Kenneth Regier
23.23 Consent of Larry Dowd
23.24 Consent of Andrew Jensen
23.25 Consent of Patrick L. Meuret
23.26 Consent of Robert Bender
24. Power of Attorney*
27. Financial Data Schedule*
</TABLE>
- ------------------
* Previously filed.
** To be filed by amendment.
EXHIBIT 2.1
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS, INC (the "Cooperative") and MINNESOTA
CORN PROCESSORS COLORADO ("MCP Colorado"), each of which may be referred to
herein as a "Constituent Cooperative" and both of which may be collectively
referred to herein as the "Constituent Cooperatives."
WHEREAS, the Cooperative is a cooperative association organized under
Chapter 308A of Minnesota Statutes, as amended (the "Minnesota Act"); and MCP
Colorado is a cooperative association organized under Title 7 Article 56 of the
Colorado Revised Statutes, as amended (the "Colorado Act"), and is a wholly
owned subsidiary of the Cooperative. The Minnesota Act and the Colorado Act may
be referred to herein collectively as the "Acts."
WHEREAS, the respective Boards of Directors of the Cooperative and MCP
Colorado and the respective members of the Cooperative and MCP Colorado each has
approved and adopted this Plan and the transactions contemplated hereby in the
manner required by their respective Articles of Incorporation and Bylaws, and
the appropriate sections of the Acts.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), the
Cooperative and MCP Colorado shall combine through merger (the "MCP Merger") in
accordance with the applicable provisions of the Acts; and MCP Colorado shall be
the surviving cooperative and shall continue to exist as a Colorado cooperative
association by virtue of, and shall be governed by, the Colorado Act.
SECTION 2. ARTICLES OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the MCP Merger,
the articles of merger (the "Articles of Merger") and a statement of merger
("Statement of Merger") shall be executed in compliance with Section 308A.801 of
the Minnesota Act and Section 7-56-605 of the Colorado Act, respectively. The
Articles of Merger shall be filed with the Secretary of State of the State of
Minnesota and the Statement of Merger shall be filed with the Secretary of State
of the State of Colorado, or as otherwise required by the Acts.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members: (a) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
have all of the rights, privileges, immunities and powers, and shall be subject
to all the duties and liabilities, of a cooperative organized under the Colorado
Act; (b) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
possess all of the rights, privileges, immunities and franchises, of a public as
well as a private nature, of each Constituent Cooperative, and all property,
real, personal and mixed, and all debts due on whatever account, including all
choses in action, and each and every other interest of or belonging to or due to
each Constituent Cooperative, shall be deemed to be and hereby is vested in MCP
Colorado, without further act or deed, and the title to any property, or any
interest therein, vested in either Constituent Cooperative, shall not revert or
be in any way impaired by reason of the MCP Merger; (c) MCP Colorado shall be
responsible and liable for all of the liabilities and obligations of each
Constituent Cooperative, and any claim existing or action or proceeding pending
by or against one of the Constituent Cooperatives may be prosecuted as if the
MCP Merger had not taken place or MCP Colorado may be substituted in its place;
(d) neither the rights of creditors nor any liens upon the property of either of
the Constituent Cooperatives shall be impaired by the MCP Merger; and (e) the
MCP Merger shall have any other effect set forth in the Acts and the Transaction
Agreement dated January ___, 1999 between the Cooperative, MCP Colorado and
Minnesota Corn Processors, LLC (the "Transaction Agreement"); all with the
effect and to the extent provided in the applicable provisions of the Acts.
1
<PAGE>
SECTION 4. ARTICLES OF INCORPORATION AND BYLAWS. From and after the
Effective Time, pursuant to the Articles of Merger and without any further
action by the Constituent Cooperatives or any of their respective members, the
Articles of Incorporation of MCP Colorado in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of MCP Colorado, as the
surviving cooperative in the MCP Merger (the "Surviving Entity Articles"). From
and after the Effective Time, without any further action by the Constituent
Cooperatives or any of their respective members, the Bylaws of MCP Colorado in
effect immediately prior to the Effective Time shall be the Bylaws of MCP
Colorado, as the surviving cooperative in the MCP Merger (the "Surviving Entity
Bylaws"). A copy of the Surviving Entity Articles of Incorporation and Bylaws
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the MCP Merger.
SECTION 5. BOARD OF DIRECTORS AND OFFICERS. From and after the Effective
Time, without any further action by the Constituent Cooperatives or any of their
respective members, each person serving as a director or an officer of the
Cooperative immediately prior to the Effective Time shall become a director or
an officer of MCP Colorado, as the surviving cooperative in the MCP Merger, (in
the case of officers, holding the same office in MCP Colorado as they held in
the Cooperative immediately prior to the Effective Time) to serve in accordance
with the Surviving Entity Bylaws. The initial directors and officers of MCP
Colorado prior to the effective date shall resign their positions as directors
and officers of MCP Colorado as of the effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION AND CONTINUATION OF
CAPITAL STOCK, NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On
the Effective Time, the manner and basis of exchanging and continuing the shares
of capital stock, non-stock equity interests, units of equity participation,
non-voting units of equity participation, patronage equity interests (including
all entitlements to patronage refunds), any other allocated equity interests,
and unallocated and capital reserves of the Cooperative and MCP Colorado (all
such interests referred to herein as "Cooperative Equity Interests" or "MCP
Colorado Equity Interests", respectively), and membership interests in the
Cooperative and MCP Colorado, for equal Equity Interests and membership
interests in MCP Colorado, shall be as follows:
(a) EXCHANGE AND CONTINUATION OF COOPERATIVE MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, each holder of common stock of the
Cooperative shall become and be a member of MCP Colorado, to the extent they
are eligible for membership under the Surviving Entity Articles and the
Surviving Entity Bylaws, in such class and with such incidents of membership
as are set forth in the Surviving Entity Articles and the Surviving Entity
Bylaws.
(b) MCP COLORADO MEMBERSHIPS. As of the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members, the Cooperative, as the sole member of MCP Colorado, shall cease to
exist by operation of the merger and shall cease to be a member of MCP
Colorado.
(c) EXCHANGE AND CONTINUATION OF COOPERATIVE EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, all Equity Interests standing on the
books of the Cooperative immediately prior to the Effective Time shall be
determined and exchanged for equal Equity Interests in MCP Colorado at its
stated dollar amount on a dollar-for-dollar basis, including as follows:
i. Common Stock. Each share of common stock of the Cooperative issued
and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall be exchanged for one (1) share of Common
Stock of MCP Colorado at a par value of $50.00 per share.
ii. Preferred Stock. Each share of Preferred stock of the Cooperative
issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one (1) share of
Preferred Stock of MCP Colorado at a par value of $50.00 per share.
iii. Patronage Equity Interests and Units of Equity Participation. All
patronage refunds (qualified and nonqualified), units of equity
participation and non-voting units of equity
2
<PAGE>
participation and any other allocated or to be allocated patronage
equity interests (including all entitlements thereto) standing on the
books of the Cooperative immediately prior to the Effective Time
(which are not otherwise evidenced by capital stock) shall be
exchanged for equal patronage refunds, units of equity participation
and non-voting units of equity participation, and allocated or to be
allocated equity interests, entitlements to patronage refunds, or
other equal patronage equity interests on the books of MCP Colorado,
at their stated dollar amount on a dollar-for-dollar basis, and in
such denominations or other designations or series so as to preserve
the year of issue (as MCP Colorado deems necessary) and other terms
and conditions of the original issuance; and each unit of equity
participation so exchanged shall be subject on the books of MCP
Colorado to the same obligation for loss allocation as standing on
the books of the Cooperative immediately prior to the Effective Time.
iv. Deferred Patronage and Unallocated Reserve. All deferred patronage
(not exchanged above), unallocated reserves, and any other
unallocated equity interests standing on the books of the Cooperative
immediately prior to the Effective Time shall be exchanged and
credited for equal deferred patronage, unallocated reserves or other
equal unallocated equity interests on the books of MCP Colorado, at
their stated dollar amount on a dollar-for-dollar basis, and in such
denominations or other designations or series so as to preserve the
year of issue (if applicable and as MCP Colorado deems necessary) and
other terms and conditions of the original issuance (if applicable).
v. Net Effect. The net effect of the exchange of Cooperative Equity
Interests for equal Equity Interests in MCP Colorado shall be that
the holders of Cooperative Equity Interests standing on the books of
the Cooperative immediately prior to the Effective Time shall hold
and will have equal Equity Interests in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis, year of issue (as determined necessary),
loss allocation obligations and any other rights and preferences, and
that the deferred patronage, unallocated reserves and other
unallocated Equity Interests of the Cooperative, as standing on its
books immediately prior to the Effective Time, shall be exchanged and
credited for an equal Equity Interest in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis and other rights and preferences.
(d) MCP COLORADO EQUITY INTERESTS. Prior to the Effective Time, the
Cooperative is the sole member of MCP Colorado and all equity interest of
any and every nature in MCP Colorado is owned by and held in the name of the
Cooperative. Upon the Effective Time, the Cooperative, as the merging
entity, shall merge with and into MCP Colorado and shall cease to exist in
its own right. All Equity Interests of any and every nature standing on the
books of MCP Colorado and held by the Cooperative immediately prior to the
Effective Time shall be cancelled.
(e) SURVIVING ENTITY ARTICLES AND BYLAWS TO GOVERN. Membership in MCP
Colorado and all Equity Interests in MCP Colorado whether issued or credited
in exchange for Cooperative Equity Interests or continued with respect to
MCP Colorado Equity Interests as described above, shall in all instances be
governed by the provisions of the Surviving Entity Articles and the
Surviving Entity Bylaws.
(f) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of Cooperative
Equity Interests and each holder of MCP Colorado Equity Interests shall take
such action or cause to be taken such action as MCP Colorado may reasonably
deem necessary or appropriate to effect the exchange and continuation of the
equity interests hereunder, including without limitation the execution and
delivery of any stock certificates or other evidences of equity being
exchanged or continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by MCP Colorado, or its successors or assigns, the
Cooperative shall execute and deliver or cause to be executed and delivered all
such deeds and other instruments, and shall take or cause to be taken all such
further action or actions, as MCP Colorado, or its successors or assigns, may
deem
3
<PAGE>
necessary or desirable in order to vest in and confirm to MCP Colorado, or its
successors or assigns, title to and possession of all of the properties, rights,
privileges, powers and franchises referred to in Section 3 of this Plan, and
otherwise to carry out the intent and purposes of this Plan. If MCP Colorado
shall at any time deem that any further assignments or assurances or any other
acts are necessary or desirable to vest, perfect or confirm of record or
otherwise the title to any property or to enforce any claims of the Cooperative
or MCP Colorado vested in MCP Colorado pursuant to this Plan, the officers of
MCP Colorado or its successors or assigns, are hereby specifically authorized as
attorneys-in-fact of each the Cooperative and MCP Colorado (which appointment is
irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each the Cooperative and MCP Colorado, or otherwise, as such
officer shall deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE TIME. The MCP Merger shall become effective at the
later of the filing of the Articles of Merger with the Secretary of State of
Minnesota and the filing of the Statement of Merger with the Secretary of State
of Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of the Cooperative and MCP Colorado, as of the date
first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
4
EXHIBIT 2.2
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS COLORADO, ("MCP Colorado") and MINNESOTA
CORN PROCESSORS, LLC ("LLC"), each of which may be referred to herein as a
"Constituent Entity" and both of which may be collectively referred to herein as
the "Constituent Entities".
WHEREAS, MCP Colorado is a cooperative association organized under Title 7,
Article 56 of the Colorado Revised Statutes as amended (the "Colorado Act"), and
LLC is a limited liability company organized under Title 7 Article 80 of the
Colorado Revised Statutes as amended (the "LLC Act"), and a wholly owned
subsidiary of MCP Colorado as a result of a merger of Minnesota Corn Processors,
Inc., a Minnesota cooperative association (the "Cooperative"), with and into MCP
Colorado, effective on the date hereof. The LLC Act and the Colorado Act may be
referred to herein collectively as the "Acts"; and
WHEREAS, the Board of Directors and members of MCP Colorado have approved
and adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Incorporation and Bylaws, the Colorado Act and other
applicable provisions of Colorado law including specifically the Colorado
Corporations and Associations Act found at Title 7, Article 90 of the Colorado
Revised Statues ("CCA Act"); and
WHEREAS, the Board of Directors and members of LLC have approved and
adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Organization and Operating Agreement, the LLC Act
and the CCA Act; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), MCP
Colorado and LLC shall combine through merger (the "LLC Merger") in accordance
with the applicable provisions of the Acts and the CCA Act, and LLC shall be the
surviving entity and shall continue to exist as a Colorado limited liability
company with principal offices at 901 North Highway 59, Marshall, MN 56258-2744,
by virtue of, and shall be governed by, the LLC Act.
SECTION 2. STATEMENT OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the LLC Merger,
a statement of merger (the "Statement of Merger") shall be executed in
accordance with all legal requirements. The Statement of Merger shall be filed
with the Secretary of State of the State of Colorado or as otherwise required by
law.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Entities or any of their respective members:
(A) LLC, as the surviving entity in the LLC Merger, shall have all of the
rights, privileges, immunities and powers, and shall be subject to all the
duties and liabilities, of a limited liability company organized under the LLC
Act; (B) LLC, as the surviving entity in the LLC Merger, shall possess all of
the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each Constituent Entity, and all property, real, personal and
mixed, and all debts due on whatever account, including all choses in action,
and each and every other interest of or belonging to or due to each Constituent
Entity, shall be deemed to be and hereby is vested in LLC, without further act
or deed, and the title to any property, or any interest therein, vested in
either Constituent Entity, shall not revert or be in any way impaired by reason
of the LLC Merger; (C) LLC shall be responsible and liable for all of the
liabilities and obligations of each Constituent Entity, and any claim existing
or action or proceeding pending by or against one of the Constituent Entities
may be prosecuted as if the LLC Merger had not taken place or LLC may be
substituted in its place; (D) neither the rights of creditors nor any liens upon
the property of either of the Constituent Entity shall be impaired by the LLC
Merger; and (E) the LLC Merger shall have any other effect set forth in the
Acts, the CCA Act, and the Transaction Agreement dated January __, 1999 between
the Cooperative, MCP
1
<PAGE>
Colorado and LLC (the "Transaction Agreement"); all with the effect and to the
extent provided in the applicable provisions of Colorado law.
SECTION 4. ARTICLES OF ORGANIZATION; OPERATING AGREEMENT. From and after
the Effective Time, pursuant to the Statement of Merger and without any further
action by the Constituent Entities or any of their respective members, the
Articles of Organization of LLC in effect immediately prior to the Effective
Time shall be the Articles of Organization of LLC, as the surviving entity in
the LLC Merger (the "Surviving Entity Articles"). From and after the Effective
Time, without any further action by the Constituent Entities or any of their
respective members, the Operating Agreement of LLC as in effect immediately
prior to the Effective Time shall be the Operating Agreement of LLC, as the
surviving entity in the LLC Merger (the "Surviving Entity Operating Agreement").
A copy of the Surviving Entity Articles of Organization and Operating Agreement
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the LLC Merger.
SECTION 5. BOARD OF DIRECTORS. From and after the Effective Time, without
any further action by the Constituent Cooperatives or any of their respective
members, each person serving as a director or an officer of MCP Colorado
immediately prior to the Effective Time shall be a director or an officer of
LLC, as the surviving entity in the LLC Merger, (in the case of officers,
holding the same office in LLC as they held in MCP Colorado immediately prior to
the Effective Time) to serve in accordance with the Surviving Entity Operating
Agreement. The initial directors and officers of LLC prior to the effective date
shall resign their positions as directors and officers of LLC as of the
effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION OF CAPITAL STOCK,
NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On the Effective
Time, the manner and basis of exchanging or converting the shares of capital
stock, non-stock equity interests, units of equity participation, non-voting
units of equity participation, patronage equity interests (including all
entitlements to patronage refunds), any other allocated equity interests, and
unallocated and capital reserves of MCP Colorado and LLC (all such interests
referred to herein as "MCP Colorado Equity Interests" or "LLC Equity Interests",
respectively), and membership interests in MCP Colorado and LLC, for
proportionally equivalent Equity Interests and equal membership interests in
LLC, shall be as follows:
(A) EXCHANGE AND CONTINUATION OF MCP COLORADO MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, (i) each member and holder of Units of
Participation of MCP Colorado shall become and be a Class A member of LLC,
to the extent they are eligible for membership under the Surviving Entity
Articles and the Surviving Entity Operating Agreement, and (ii) each holder
of non-voting Units of Participation of MCP Colorado shall become and be a
Class B member of LLC. Class A and Class B members shall have such incidents
of membership as are set forth in the Surviving Entity Articles and the
Surviving Entity Operating Agreement.
(B) LLC MEMBERSHIP. As of the Effective Time, without any further action
by the Constituent Entities or any of their respective members, MCP
Colorado, as the sole member of LLC, shall cease to exist by operation of
the merger and shall also cease to be a member of LLC.
(C) EXCHANGE AND CONTINUATION OF MCP COLORADO EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, all MCP Colorado Equity Interests standing
on the books of` MCP Colorado immediately after the consummation of the
merger of The Cooperative with and into MCP Colorado, and immediately prior
to the Effective Time shall be determined and exchanged for proportionally
equivalent Equity Interests in LLC as follows:
I. VOTING UNITS OF EQUITY PARTICIPATION. Each voting unit of equity
participation standing on the books of MCP Colorado and held by
members of MCP Colorado ("Member Equity") immediately prior to the
Effective Time shall cease to be outstanding and shall be exchanged
for one Class A Unit of LLC; and each Class A Unit of LLC so
exchanged shall be subject on the books of LLC to the same
obligation for loss allocation as standing on the books of MCP
Colorado immediately prior to the Effective Time.
II. NON-VOTING UNITS OF EQUITY PARTICIPATION. Each non-voting unit of
equity participation standing on the books of MCP Colorado and held
by non-members of MCP Colorado
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("Non-Member Equity") immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one Class B Unit
of LLC.
III. COMMON STOCK. All shares of common stock standing on the books of
MCP Colorado immediately prior to the Effective Time shall be
cancelled and shall cease to exist.
IV. NONQUALIFIED PATRONAGE REFUNDS. All nonqualified patronage refunds
standing on the books of MCP Colorado immediately prior to the
Effective Time shall be converted into nonvoting financial interests
of LLC having the same stated dollar amount, years of issue (as LLC
deems necessary) and other terms and conditions as applicable to
such nonqualified patronage refunds immediately prior to the
Effective Time.
(D) LLC EQUITY INTERESTS. Prior to the Effective Time, MCP Colorado is
the sole member of LLC and all equity interest of any and every nature in
LLC is owned by and held in the name of MCP Colorado. Upon the Effective
Time, MCP Colorado, as the merging entity, shall merge with and into LLC and
shall cease to exist in its own right. All Equity Interests of any and every
nature standing on the books of LLC immediately prior to the Effective Time
shall be cancelled.
(E) SURVIVING ENTITY ARTICLES AND OPERATING AGREEMENT TO GOVERN.
Membership in LLC and all Equity Interests in LLC issued or credited in
exchange for MCP Colorado Equity Interests and continued with respect to LLC
Equity as described above, shall in all instances be governed by the
provisions of the Surviving Entity Articles and the Surviving Entity
Operating Agreement.
(F) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of MCP Colorado
Equity Interests and each holder of LLC Equity Interests shall take such
action or cause to be taken such action as LLC may reasonably deem necessary
or appropriate to effect the exchange and continuation of the equity
interests hereunder, including without limitation the execution and delivery
of any stock certificates or other evidences of equity being exchanged or
continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by LLC, or its successors or assigns, MCP Colorado
shall execute and deliver or cause to be executed and delivered all such deeds
and other instruments, and shall take or cause to be taken all such further
action or actions, as LLC, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to LLC, or its successors or assigns,
title to and possession of all of the properties, rights, privileges, powers and
franchises referred to in Section 3 of this Plan, and otherwise to carry out the
intent and purposes of this Plan. If LLC shall at any time deem that any further
assignments or assurances or any other acts are necessary or desirable to vest,
perfect or confirm of record or otherwise the title to any property or to
enforce any claims of MCP Colorado or LLC vested in LLC pursuant to this Plan,
the officers of LLC or its successors or assigns, are hereby specifically
authorized as attorneys-in-fact of each MCP Colorado and LLC (which appointment
is irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each MCP Colorado and LLC, or otherwise, as such officer shall
deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE DATE. The LLC Merger shall become effective at the
time of filing of the Statement of Merger with the Secretary of State of
Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
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IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of MCP Colorado and LLC, as of the date first set
forth above.
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
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EXHIBIT 2.3
-------------------------------
-------------------------------
TRANSACTION AGREEMENT
by and among
MINNESOTA CORN PROCESSORS, INC.
a Minnesota cooperative association
and
MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association
and
MINNESOTA CORN PROCESSORS, LLC
a Colorado limited liability company
Dated as of January 22, 1999
-------------------------------
-------------------------------
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
OVERVIEW OF THE TRANSACTIONS .................................................... 1
Section 1.01 Purpose ............................................................ 1
Section 1.02 The MCP Merger ..................................................... 1
Section 1.03 The LLC Merger ..................................................... 2
Section 1.04 The Closing ........................................................ 2
Section 1.05 Actions at the Closing ............................................. 2
Section 1.06 Effective Time ..................................................... 2
Section 1.07 Effect of the Mergers .............................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE ............................... 3
Section 2.01 Representations and Warranties of the Cooperative .................. 3
Section 2.02 Organization and Good Standing ..................................... 3
Section 2.03 Capital Stock and Equity Participation Units ....................... 3
Section 2.04 Financial Statements ............................................... 4
Section 2.05 Undisclosed Liabilities ............................................ 4
Section 2.06 Compliance with Applicable Laws .................................... 4
Section 2.07 Legal Proceedings .................................................. 4
Section 2.08 Absence of Defaults ................................................ 4
Section 2.09 Authorization ...................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO .................................. 5
Section 3.01 Representations and Warranties of MCP Colorado ..................... 5
Section 3.02 Organization and Good Standing ..................................... 5
Section 3.03 Capital Stock ......................................................
Section 3.04 Authorization ...................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC ........................................... 6
Section 4.01 Representations and Warranties of LLC .............................. 6
Section 4.02 Organization and Good Standing ..................................... 6
Section 4.03 Capital Stock ...................................................... 6
Section 4.04 Authorization ...................................................... 7
ARTICLE V
COVENANTS ....................................................................... 7
Section 5.01 Reasonable Best Efforts ............................................ 7
Section 5.02 Conduct of Business ................................................ 8
Section 5.03 Forbearances ....................................................... 8
Section 5.04 Meetings of Members ................................................ 9
Section 5.05 Access ............................................................. 9
Section 5.06 Notice of Developments ............................................. 9
Section 5.07 Exclusivity ........................................................ 9
Section 5.08 Registration Statement ............................................. 9
ARTICLE VI
CONDITIONS PRECEDENT ............................................................ 10
Section 6.01 Conditions to Obligations of Each Party to the MCP Merger .......... 10
Section 6.02 Conditions to Obligations of Each Party to the LLC Merger .......... 10
Section 6.03 Additional Conditions to Obligation of the Cooperative ............. 11
Section 6.04 Additional Conditions to Obligation of MCP Colorado ................ 12
Section 6.05 Additional Conditions to Obligation of LLC ......................... 12
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII
POST CLOSING AGREEMENTS ................................................... 13
Section 7.01 Employee Benefit Plans ....................................... 13
Section 7.02 Patronage Distributions ...................................... 13
Section 7.03 1996 Loss Payable ............................................ 13
Section 7.04 Indemnification; Directors' and Officers' Insurance .......... 13
ARTICLE VIII
TERMINATION ............................................................... 14
Section 8.01 Termination of Agreement ..................................... 14
Section 8.02 Effect of Termination ........................................ 14
ARTICLE IX
MISCELLANEOUS ............................................................. 14
Section 9.01 Waiver ....................................................... 14
Section 9.02 Amendment .................................................... 15
Section 9.03 Binding Nature ............................................... 15
Section 9.04 Counterparts ................................................. 15
Section 9.05 Entire Agreement ............................................. 15
Section 9.06 Notices ...................................................... 15
Section 9.07 Nonsurvival of Representations and Warranties ................ 16
Section 9.08 Captions ..................................................... 16
</TABLE>
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TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT ( "Agreement") is made and entered into as of
January 22, 1999, by and among MINNESOTA CORN PROCESSORS, a Minnesota
cooperative association (the "Cooperative"), MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association ("MCP Colorado") and MINNESOTA CORN
PROCESSORS, LLC, a Colorado limited liability company ("LLC").
WHEREAS, the Cooperative, MCP Colorado, and LLC are each organized to
benefit and serve their respective members and patrons; and
WHEREAS, the parties believe the interests of their respective members will
best be benefitted and served if the parties reorganize their business
operations and corporate structure whereby: (i) the Cooperative will merge into
MCP Colorado, with MCP Colorado being the surviving entity (the "MCP Merger");
and (ii) MCP Colorado will then merge into LLC, with LLC being the surviving
entity (the "LLC Merger"); the MCP Merger and the LLC Merger may be referred to
in this Agreement individually as a "Merger" or "Transaction" and collectively
as the "Mergers" or "Transactions"; and
WHEREAS, the parties have now agreed on the final terms and conditions of
the Mergers, and wish to: (i) memorialize these agreements as more particularly
described herein; and (ii) enter into this Agreement for the purpose of
effecting the Mergers;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
OVERVIEW OF THE TRANSACTIONS
SECTION 1.01. PURPOSE. The purpose of the transactions contemplated by this
Agreement is to reorganize the corporate structure of the Cooperative from a
Minnesota cooperative association into a Colorado limited liability company.
This reorganization will be accomplished through a two-step merger process.
First, the Cooperative shall merge with and into Cooperative Colorado. Second,
Cooperative Colorado will merge with and into LLC. The MCP Merger and the LLC
Merger are separate and distinct transactions, and each Merger shall be
individually consummated. Although the Mergers are separate transactions,
consummation of the LLC Merger is contingent upon consummation of the MCP
Merger. Upon completion of both Mergers, the Cooperative and MCP Colorado will
cease to exist and LLC will continue as the sole surviving entity.
SECTION 1.02 THE MCP MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit A (the "MCP
Merger Agreement), the Cooperative will merge with and into MCP Colorado. MCP
Colorado shall be the surviving entity (the "Surviving Colorado Entity").
Immediately after completion of the MCP Merger and without any further action by
its board of directors and members, MCP Colorado, as the Surviving Colorado
Entity, shall merge with and into LLC as described in Section 1.03 hereof.
SECTION 1.03 THE LLC MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit B (the "LLC
Merger Agreement), MCP Colorado will merge with and into LLC. LLC shall be the
surviving entity (the "Surviving Entity"), and thereafter shall continue to
exist and operate as Minnesota Corn Processors, LLC under the laws of the State
of Colorado.
SECTION 1.04 THE CLOSING. The closing of the Mergers (the "Closing") will
take place on the date the Effective Time occurs at the offices of Dorsey &
Whitney, LLC, 220 South Sixth Street, Minneapolis, Minnesota 55402 or on such
other date and/or at such other place as the parties may agree.
SECTION 1.05 ACTIONS AT THE CLOSING. At the Closing, the parties shall
take the following actions:
(a) MCP Merger. The Cooperative and MCP Colorado shall (i) execute the
MCP Merger Agreement, (ii) execute and deliver to each other the various
certificates, instruments, and documents
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referred to in the MCP Merger Agreement, and (iii) execute and file with the
Secretary of State of the States of Minnesota and Colorado articles of merger as
required by the laws of the States of Minnesota and Colorado to effectuate the
merger in accordance with the terms of the MCP Merger Agreement.
(b) LLC Merger. MCP Colorado and LLC shall (i) execute the LLC Merger
Agreement, (ii) execute and deliver to each other the various certificates,
instruments, and documents referred to in the LLC Merger Agreement, and (iii)
execute and file with the Colorado Secretary of State a statement of merger as
required by the laws of the State of Colorado to effectuate the merger in
accordance with the terms of the LLC Merger Agreement.
SECTION 1.06 EFFECTIVE TIME. Each of the Mergers shall become effective on
the date on which the articles of merger and statement of merger have been duly
filed in the respective offices of the Minnesota and Colorado Secretary of State
as required by law (the "Effective Time"). At any time after the Effective Time,
LLC as the Surviving Entity may take any action (including executing and
delivering any document) in the name and on behalf of any party to this
Agreement in order to carry out and effectuate the transactions contemplated by
this Agreement.
SECTION 1.07 EFFECT OF THE MERGERS.
(a) Articles of Organization and Operating Agreement. The Articles of
Organization of LLC attached hereto as Exhibit C and the Operating Agreement of
LLC attached hereto as Exhibit D shall become the Articles of Organization and
the Operating Agreement of the Surviving Entity.
(b) Directors and Officers. The officers and directors of the Cooperative
at the Effective Time shall, from and after the Effective Time, be the directors
and officers of LLC (the "LLC Directors and Officers") to serve until their
respective terms have expired and their successors have been duly elected and
qualified in accordance with the terms of LLC's Operating Agreement. The terms
of the LLC Directors and Officers shall expire on the date each such director's
or officer's term would have expired under Article III Section 1 of the
Cooperative's Amended and Restated Bylaws had the Mergers not occurred. At the
Effective Time, the initial directors and officers of MCP Colorado and LLC
immediately prior to the Effective Time shall resign as directors and officers
of MCP Colorado and LLC, respectively.
(c) Stock and Units of Equity Participation. At the Effective Time,
without any further action by the parties or any of their respective members,
and as further described in the MCP Merger Agreement and the LLC Merger
Agreement:
(i) Each member of the Cooperative prior to the Effective Time shall
first become a member of MCP Colorado as a result of the MCP Merger and then
shall automatically become a member of LLC as the Surviving Entity upon
consummation of the LLC Merger; and
(ii) Upon consummation of the MCP Merger, (1) the stock and units of
equity participation held by each member and each nonmember of the
Cooperative shall be automatically converted into like forms and amounts
(on a one-for-one basis) of stock and units of equity participation of MCP
Colorado and (2) all stock of MCP Colorado owned by the Cooperative shall
be cancelled without payment of any consideration therefor. Upon
consummation of the LLC Merger, (1) each unit of equity participation of
MCP Colorado shall automatically be converted into one Class A Unit (for
voting members) or one Class B Unit (for nonvoting members) of LLC and (2)
each outstanding share of common stock of MCP Colorado shall be cancelled.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE
SECTION 2.01. REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE. The
Cooperative represents and warrants to MCP Colorado that the statements
contained in this Article II are correct and complete in all material respects
as of the date of this Agreement, except as set forth in the Cooperative
Disclosure Schedule delivered by the Cooperative to MCP Colorado attached hereto
(the "Cooperative Disclosure Schedule").
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SECTION 2.02 ORGANIZATION AND GOOD STANDING. The Cooperative is a
cooperative association duly organized and existing under Chapter 308A of the
Minnesota Statutes (as amended, the "Cooperative Act"), is in good standing
under the laws of the State of Minnesota, and has all requisite corporate power
and authority to own its properties and conduct its business as it is presently
being conducted. The Cooperative is duly qualified to do business and is in good
standing in each jurisdiction in which it conducts business or owns or leases
properties of a nature which would require such qualification.
SECTION 2.03 CAPITAL STOCK AND EQUITY PARTICIPATION UNITS. As of the date
hereof, the authorized capital stock of the Cooperative consists solely of
100,000 shares of common stock, of which 28,321 are issued and outstanding, and
100,000 shares of preferred stock, none of which are issued and outstanding. A
total of 195,696,031 units of equity participation (voting and nonvoting) are
issued and outstanding. The outstanding shares of common stock and units of
equity participation have been duly authorized and are validly issued and
outstanding.
SECTION 2.04 FINANCIAL STATEMENTS. The Cooperative has delivered to MCP
Colorado its audited financial statements as of March 31, 1998, accompanied by
the opinion of Clifton, Gunderson, LLC and its unaudited financial statements as
of September 30, 1998, certified by the Treasurer of the Cooperative. Such
financial statements fairly present the financial position of the Cooperative at
the dates indicated therein and the results of its operation for the periods
indicated therein, in conformity with generally accepted accounting principles
consistently applied. There has been no material adverse change in the financial
condition or results of operations of the Cooperative since the date of such
financial statements.
SECTION 2.05 UNDISCLOSED LIABILITIES. Except for those liabilities
reflected in the financial statements referred to in Section 2.04 and for
liabilities incurred in the ordinary course of business since September 30,
1998, the Cooperative has not incurred a liability that, either individually or
in the aggregate, has had or will have a material adverse effect on the
Cooperative.
SECTION 2.06 COMPLIANCE WITH APPLICABLE LAWS. The Cooperative is in
compliance with all applicable laws and regulations the violation of which would
have a material adverse effect on the Cooperative or on its business as
currently conducted. The Cooperative has all material licenses and permits
required by law or otherwise necessary for the proper operation of its business
as currently conducted, all of such licenses and permits are in full force and
effect, and no action to terminate, withdraw, not renew or materially limit or
otherwise change any such license or permit is pending or has been threatened by
any governmental agency or other party.
SECTION 2.07 LEGAL PROCEEDINGS. There is no material action, proceeding or
investigation by any administrative or regulatory body or other person which has
been commenced or is pending, or to the best of the Cooperative's knowledge
after reasonable inquiry, is threatened against the Cooperative or any of the
assets which are owned by the Cooperative.
SECTION 2.08 ABSENCE OF DEFAULTS. The Cooperative is not in any material
respect in default under any provision of its Articles of Incorporation or
Bylaws or any material indenture, mortgage, loan agreement or other material
agreement to which it is a party or by which it is bound, and the Cooperative is
not in violation of any statute, order, rule or regulation of any court or
governmental agency having jurisdiction over it or its properties which if
enforced could have a material adverse effect on its business, and except for
any consent or approval identified on Exhibit E attached hereto, neither the
execution and delivery of this Agreement nor the consummation of the
Transactions in accordance with this Agreement will in any material respect
conflict with or result in a breach of any of the foregoing, which if enforced
could have a material adverse effect on its business.
SECTION 2.09 AUTHORIZATION. The Cooperative has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Section 6.01(a)). This
Agreement and the Transaction have been duly and validly authorized by the Board
of Directors of the Cooperative, and, except for the approval of its members as
required by Section 6.01(a), no other corporate action is required by the
Cooperative in connection with this Agreement or the Transaction. This Agreement
constitutes the valid and binding agreement of the Cooperative, enforceable
against the Cooperative in accordance with its terms, except to the extent such
enforcement may be limited by the application of equitable principles where
equitable relief is sought or bankruptcy and other laws relating to the
enforcement of creditors, rights generally.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF MCP COLORADO. MCP Colorado
represents and warrants to the Cooperative and LLC that the statements contained
in this Article III are correct and complete in all material respects as of the
date of this Agreement, except as set forth in the MCP Colorado Disclosure
Schedule attached hereto (the "MCP Colorado Disclosure Schedule").
SECTION 3.02 ORGANIZATION AND GOOD STANDING. MCP Colorado is a cooperative
association duly organized and existing under the Colorado Cooperative Act, is
in good standing under the laws of the State of Colorado, and has all requisite
corporate power and authority to own its properties and conduct its business as
it is presently being conducted. MCP Colorado is duly qualified to do business
and is in good standing in each jurisdiction in which it conducts business or
owns or leases properties of a nature which would require such qualification.
SECTION 3.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of MCP Colorado consists of 100,000 shares of common stock, of which one
share is issued and outstanding, and 100,000 shares of preferred stock, of which
none are issued and outstanding.
SECTION 3.04 AUTHORIZATION. MCP Colorado has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Sections 6.01(b) and
6.02(a)). This Agreement and the Transaction have been duly and validly
authorized by the Board of Directors of MCP Colorado, and except for the
approvals of its members and defined members as required by Sections 6.01(b) and
6.02(a) no other corporate action is required by MCP Colorado in connection with
this Agreement or the Transactions. This Agreement constitutes the valid and
binding agreement of MCP Colorado, enforceable against MCP Colorado in
accordance with its terms, except to the extent such enforcement may be limited
by the application of equitable principles where equitable relief is sought or
bankruptcy and other laws relating to the enforcement of creditors, rights
generally.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and
warrants to MCP Colorado that the statements contained in this Article IV are
correct and complete in all material respects as of the date of this Agreement,
except as set forth in the LLC Disclosure Schedule delivered by LLC to MCP
Colorado attached hereto (the "LLC Disclosure Schedule").
SECTION 4.02 ORGANIZATION AND GOOD STANDING. LLC is a limited liability
company duly organized and existing under the Colorado Limited Liability Company
Act, is in good standing under the laws of the State of Colorado, and has all
requisite corporate power and authority to own its properties and conduct its
business as it is presently being conducted. LLC is duly qualified to do
business and is in good standing in each jurisdiction in which it conducts
business or owns or leases properties of a nature which would require such
qualification.
SECTION 4.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of LLC consists of 350,000,000 Class A units and 150,000,000 Class B
units, of which none are issued and outstanding, respectively.
SECTION 4.04 AUTHORIZATION. LLC has the corporate power and authority to
execute and to perform its obligations under this Agreement. This Agreement and
the Transaction have been duly and validly authorized by the Board of Directors
of LLC, and, except for the approval of its members as required by Section
6.02(b), no other corporate action is required by LLC in connection with this
Agreement or the Transaction. This Agreement constitutes the valid and binding
agreement of LLC, enforceable against LLC in accordance with its terms, except
to the extent such enforcement may be limited by the application of equitable
principles where equitable relief is sought or bankruptcy and other laws
relating to the enforcement of creditors, rights generally.
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ARTICLE V
COVENANTS
SECTION 5.01 REASONABLE BEST EFFORTS. Each party agrees to cooperate with
the other parties hereto and to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable, or advisable under applicable laws, so as
to permit consummation of the Mergers as promptly as practicable. In addition,
each party shall cooperate and use its reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties necessary to consummate the
Transactions contemplated by this Agreement.
SECTION 5.02 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, each of the Cooperative and MCP Colorado shall conduct its business
in the ordinary course and in a manner consistent with its past practices
(except as expressly contemplated hereby), and shall use good faith efforts to
preserve intact its business organization, properties (except as they may be
sold, used or otherwise disposed of in the ordinary course) and the good will of
its members, suppliers, customers and others having business relationships with
it.
SECTION 5.03 FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, without the prior consent of the other party to this Agreement,
neither party shall:
(a) grant to any person any option or other right to acquire capital
stock or other equity interests, except for allocation of patronage equities in
a manner consistent with past practice;
(b) issue any additional shares or units of capital stock and other
equity interests, except in the ordinary course of business and consistent with
past practice;
(c) enter into, amend or terminate any material contract, lease or
understanding;
(d) amend its Articles of Incorporation or Articles of Organization, as
the case may be, its Bylaws or Operating Agreement, as the case may be, or any
board policies;
(e) incur any indebtedness for borrowed money or make any commitment to
borrow money, except indebtedness incurred in the ordinary course of business
pursuant to credit arrangements existing as of the date of this Agreement
(including any renewals thereof);
(f) make any material capital expenditures other than in the ordinary
course of business or which were disclosed to the other party;
(g) mortgage any of its assets or properties, or except in the ordinary
course of business, sell any of its material assets or properties;
(h) pay any dividends or make any distributions with respect to its
capital stock or equity interests, except in the ordinary course of business;
(i) reclassify, combine, subdivide, split, or amend its capital stock or
equity interests;
(j) purchase, acquire or redeem any shares of its capital stock or equity
interests, except in the ordinary course of business; or
(k) agree or commit to do any of the foregoing.
SECTION 5.04 MEETINGS OF MEMBERS. Each of the Cooperative and MCP Colorado
will take all steps necessary to call an appropriate meeting of its respective
members, for the purpose of considering and voting on this Agreement and its
respective Merger in accordance with its respective Articles of Incorporation,
Bylaws and applicable law.
SECTION 5.05 ACCESS. Each party will permit the authorized representatives
of the other parties to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of such party,
to all premises, properties, personnel, books, records (including tax records),
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contracts, and documents of or pertaining to such party, and will furnish them
such additional financial and operating data and other information concerning
its business and properties as such other parties may from time to time
reasonably request. Each of the parties will use their best efforts to cause all
confidential information obtained by it from the other parties to be treated as
such, will also use its best efforts not to use such information in a manner
detrimental to such party and, if for any reason the Transactions are not
consummated, will promptly return all documents, papers, books, records and
other materials (and all copies thereof) obtained in the course of its
investigation and evaluation.
SECTION 5.06 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties contained herein. Except as specified
in such written notice, no disclosure by a party pursuant to this Section 5.06
shall be deemed to amend or supplement such party's Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
SECTION 5.07 EXCLUSIVITY. Except for the Transactions contemplated by this
Agreement, none of the parties will (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of such party (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. Each party will notify the other
party immediately if any person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
SECTION 5.08 REGISTRATION STATEMENT. LLC shall promptly prepare and file
with the SEC a Registration Statement on Form S-4 (the "Registration Statement")
in connection with the issuance of Class A and Class B units in the LLC Merger.
The parties shall use their reasonable best efforts to have the Registration
Statement declared effective under the Securities Act of 1933 (the "Securities
Act") as promptly as practicable after such filing, and the parties shall
thereafter mail or deliver the Information Statement Prospectus, which
constitutes a part of the Registration Statement, to their respective members.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE MCP MERGER. The
respective obligations of the Cooperative and MCP Colorado to consummate the MCP
Merger and other matters described in this Agreement, are subject to the
satisfaction or waiver of each of the following conditions on or before the
Effective Time, except that condition (f) must be satisfied and cannot be waived
by either party:
(a) The members of the Cooperative shall have approved this Agreement and
the MCP Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of the Cooperative;
(b) The members of MCP Colorado shall have approved the MCP Merger
Agreement and this Agreement all in accordance with the requirements of
applicable law and the Articles of Incorporation and Bylaws of MCP Colorado;
(c) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(d) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(e) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of
6
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the Transactions or seeking to obtain divestiture or other relief in the event
of consummation of the Transactions. It is understood in the event that such an
action is threatened or instituted, the parties will first attempt for a period
of 90 days to obtain dismissal or other favorable resolution of such threatened
or actual action prior to exercise of their right to terminate hereunder;
(f) The members of MCP Colorado shall have approved the LLC Merger
Agreement and this Agreement as set forth in Section 6.02(a); and
(g) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE LLC MERGER. The
respective obligations of MCP Colorado and LLC to consummate the LLC Merger and
other matters described in this Agreement, are subject to the satisfaction or
waiver of each of the following conditions on or before the Effective Time,
except that condition (f) must be satisfied and cannot be waived by either
party:
(a) The members of MCP Colorado shall have approved this Agreement and
the LLC Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of MCP Colorado;
(b) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(c) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(d) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of the Transactions or
seeking to obtain divestiture or other relief in the event of consummation of
the Transactions. It is understood in the event that such an action is
threatened or instituted, the parties will first attempt for a period of 90 days
to obtain dismissal or other favorable resolution of such threatened or actual
action prior to exercise of their right to terminate hereunder;
(e) The members of the Cooperative and MCP Colorado shall have approved
the MCP Merger Agreement and this Agreement as set forth in Section 6.01(a) and
6.01(b), and the MCP Merger should be consummated; and
(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.03 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COOPERATIVE. The
obligation of the Cooperative to consummate the MCP Merger is subject to the
satisfaction or waiver of each of the following additional conditions at or
before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the MCP
Merger Agreement prior to the Effective Time;
(b) The Cooperative shall have received a certificate, dated as of the
Effective Time, and executed by the President of MCP Colorado, certifying in
such detail as the Cooperative may reasonably request as to the accuracy of such
representations and warranties, the fulfillment of such obligations, compliance
with such covenants and satisfaction of the conditions to the Cooperative's
obligation as of the Effective Time; and
(c) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to the Cooperative.
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SECTION 6.04 ADDITIONAL CONDITIONS TO OBLIGATION OF MCP COLORADO. The
obligation of MCP Colorado to consummate the MCP Merger and the LLC Merger is
subject to the satisfaction or waiver of each of the following additional
conditions at or before the Effective Time:
(a) The representations and warranties of the Cooperative and LLC
contained in this Agreement shall be true and correct in all material respects
as of the Effective Time as though such representations and warranties were made
on and as of the Effective Time, and the Cooperative and LLC shall have
performed in all material respects all of their respective obligations required
to be performed by each of them under this Agreement, the MCP Merger Agreement,
and the LLC Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
MCP Colorado after the date hereof that alone, or together with all other facts,
events or circumstances, has had or is reasonably likely to have a material
adverse effect on the Cooperative or the Surviving Entity;
(c) MCP Colorado shall have received a certificate, from each of the
Cooperative and LLC dated as of the Effective Time, executed by their
Presidents, certifying in such detail as MCP Colorado may reasonably request as
to the accuracy of their representations and warranties, the fulfillment of
their obligations, compliance with their covenants and satisfaction of the
conditions to MCP Colorado's obligations as of the Effective Time; and
(d) All actions, proceedings and documents necessary to carry out the
Transaction (including, without limitation, the Cooperative Disclosure Schedule
and LLC Disclosure Schedule) shall be reasonably satisfactory to MCP Colorado.
SECTION 6.05 ADDITIONAL CONDITIONS TO OBLIGATION OF LLC. The obligation of
LLC to consummate the LLC Merger is subject to the satisfaction or waiver of
each of the following additional conditions at or before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the LLC
Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
LLC after the date hereof that alone, or together with all other facts, events
or circumstances, has had or is reasonably likely to have a material adverse
effect on MCP Colorado;
(c) LLC shall have received a certificate, dated as of the Effective
Time, and executed by the President of MCP Colorado, certifying in such detail
as LLC may reasonably request as to the accuracy of such representations and
warranties, the fulfillment of such obligations, compliance with such covenants
and satisfaction of the conditions to LLC's obligation as of the Effective Time;
and
(d) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to LLC.
ARTICLE VII
POST CLOSING AGREEMENTS
SECTION 7.01 EMPLOYEE BENEFIT PLANS. From and after the Effective Time, the
employee benefit plans of the Cooperative in effect as of the date of this
Agreement shall remain in effect with respect to employees of the Cooperative
(or their subsidiaries) covered by such plans at the Closing Date until such
time as LLC shall, subject to applicable law and the terms of such plans, adopt
new benefit plans with respect to employees of LLC. LLC agrees to honor in
accordance with their terms all benefits vested as of the date hereof under the
employee benefit plans of the Cooperative. Nothing in this Section 7.01 shall be
interpreted as preventing LLC from amending, modifying or terminating any
employee benefit plan of the Cooperative or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
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SECTION 7.02 PATRONAGE DISTRIBUTIONS. Following the Effective Time and
within the time period required by the various provisions of the Code, the
Surviving Entity will make patronage distributions to the former members of each
party based on patronage transactions with the respective parties during each
party's respective fiscal year or portion thereof immediately preceding the
Effective Time. The patronage distributions shall be in the form of cash and
equity credits in a manner consistent with the previous patronage distributions
of each party (and in the case of equity credits, in the form of Class A Units
or Class B units of LLC, as appropriate).
SECTION 7.03 1996 LOSS PAYABLE. After the Effective Time, the unpaid
portion of the Cooperative's operating loss for the fiscal year ended September
30, 1996 that was assessed against a unit of equity participation of the
Cooperative shall continue as a lien against a Class A unit received in the LLC
Merger.
SECTION 7.04 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and
after the Effective Time, the Surviving Entity shall indemnify each present and
former director, officer, employee or agent of the Cooperative or MCP Colorado
and each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture or any other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities or expenses
(including legal fees) arising out of or pertaining to matters existing or
occurring at or before the Effective Time, whether asserted or claimed prior to,
at or after the Effective Time, to the fullest extent permitted by law. The
Surviving Entity may obtain insurance coverage against any such loss, claim or
expense, subject to standard exclusions and exceptions to coverage, but is not
obligated to do so.
ARTICLE VIII
TERMINATION
SECTION 8.01 TERMINATION OF AGREEMENT. This Agreement shall be terminated
and the Transactions abandoned if at any time prior to the Effective Time:
(a) The members of the Cooperative fail to approve the Merger as required
by Section 6.01(a) or the members of MCP Colorado fail to approve the Merger as
required by Sections 6.01(b) and 6.02(a).
(b) The parties mutually agree in writing to terminate this Agreement;
or
(c) Either party to a Merger delivers a written notice to the other, to
the effect that (i) one or more of the conditions to its obligations as set
forth herein cannot be met, (ii) the other party has defaulted in a material
respect under one or more of its covenants or agreements contained herein, or
(iii) any of the representations or warranties of the other party are or have
become materially untrue or incorrect as of the date of such notice, and in any
case such condition or conditions have not been satisfied, such default or
defaults have not been remedied or such representation or warranty has not been
rendered true and correct within thirty (30) days after such notice is mailed;
or
(d) The Closing has not occurred on or before August 1, 1999, or such
later date as the parties may mutually agree upon.
SECTION 8.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.01 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
(except for any liability of a party then in breach); provided, however, that
the confidentiality and return of documents provisions contained in or referred
to Section 5.05 above shall survive any such termination.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 WAIVER. At any time before the Effective Time, any provision
of this Agreement may, to the extent legally allowed, be waived by the party
benefitted by the provision by an agreement in
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writing between the parties hereto executed in the same manner as this
Agreement, except that after approval of the Mergers contemplated by this
Agreement by the respective members of the Cooperative and MCP Colorado, there
may not be any waiver of any provision of this Agreement which would reduce the
amount or form of consideration to be received by members in the Mergers.
SECTION 9.02 AMENDMENT. The parties by mutual consent may amend, modify or
supplement this Agreement in such manner as may be agreed upon in writing;
provided, however, that after approval of the Mergers by the respective members
of the Cooperative and MCP Colorado, this Agreement may not be amended if it
would violate applicable law or reduce the amount or form of the consideration
to be received by members in the Mergers.
SECTION 9.03 BINDING NATURE. This Agreement shall be binding upon and inure
only to the benefit of the parties hereto and their respective successors and
assigns, provided that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties hereto.
SECTION 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.05 ENTIRE AGREEMENT. This Agreement, the MCP Merger Agreement,
the LLC Merger Agreement and the other documents referred to herein and therein
set forth the entire understanding of the parties hereto with respect to the
matters provided for herein and therein and supersede all prior agreements,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of either party.
SECTION 9.06 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered
personally, telecopied (with confirmation) or mailed by certified or registered
mail (return receipt requested), to the parties at the following addresses (or
such other address as such party may specify by like notice):
If to the Cooperative: Minnesota Corn Processors, Inc.
901 North Highway 59
Marshall, MN 56258
Attn: L. Dan Thompson
If to MCP Colorado: Minnesota Corn Processors Colorado
---------------------------
---------------------------
---------------------------
Attn:----------------------
If to LLC: Minnesota Corn Processors, LLC
---------------------------
---------------------------
---------------------------
Attn:----------------------
SECTION 9.07 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in Articles II, III and
IV of this Agreement shall form the basis for closing conditions only, shall not
survive the Effective Time and shall not form the basis for any action by or on
behalf of either party or any third party for breach, misrepresentation or
indemnity at any time after the Effective Time.
SECTION 9.08 CAPTIONS. The article and section headings of this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
* * * * * * * * * * * * * * * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
EXHIBITS
Exhibit A - MCP Merger Agreement
Exhibit B - LLC Merger Agreement
Exhibit C - Surviving Entity Articles of Organization
Exhibit D - Surviving Entity Operating Agreement
Exhibit E - List of Consents and Approvals
11
EXHIBIT 3.2
OPERATING AGREEMENT
OF
MINNESOTA CORN PROCESSORS, LLC
A Colorado Limited Liability Company
(CONTAINS RESTRICTIONS ON
TRANSFERABILITY OF MEMBERSHIP INTERESTS)
<PAGE>
MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE I DEFINITIONS ................................................................. 1
1.1 Terms Defined in the Act .................................................. 1
1.2 Terms Defined Herein ...................................................... 1
ARTICLE II THE LIMITED LIABILITY COMPANY ............................................... 8
2.1 Formation; Effective Date of Agreement .................................... 8
2.2 Name ...................................................................... 8
2.3 Business Purpose .......................................................... 9
2.4 Powers .................................................................... 9
2.5 Duration .................................................................. 9
2.6 Registered Office and Registered Agent .................................... 9
2.7 Principal Office .......................................................... 9
2.8 Title to Property; No Agency Power ........................................ 9
2.9 Limited Liability of Members and Directors ................................ 9
ARTICLE III MEMBERS .................................................................... 10
3.1 Membership ................................................................ 10
3.2 Ownership of Membership Interests ......................................... 10
3.3 Classes of Membership ..................................................... 11
3.4 Voting .................................................................... 11
3.5 Place of Meetings ......................................................... 12
3.6 Regular Meetings .......................................................... 12
3.7 Special Meetings .......................................................... 12
3.8 Notice of Meetings ........................................................ 12
3.9 Waiver of Notice .......................................................... 12
3.10 Quorum .................................................................... 12
3.11 Proxies; Mail Ballots ..................................................... 13
3.12 Action Without Meeting .................................................... 13
3.13 Telephonic Meetings ....................................................... 13
3.14 Termination of Membership ................................................. 13
3.15 Continuation of the Company ............................................... 14
3.16 No Obligation to Purchase Units ........................................... 14
3.17 Advance Consent to Certain Substitute Members ............................. 14
3.18 Compliance with Articles of Organization and Operating Agreement .......... 15
3.19 No Dissenters' Rights ..................................................... 15
ARTICLE IV CAPITAL ..................................................................... 15
4.1 Units ..................................................................... 15
4.2 Capital Accounts .......................................................... 15
4.3 Initial Issuance of Units; Offering of Additional Units ................... 16
4.4 No Capital Calls .......................................................... 17
4.5 Tax Withholding Obligations ............................................... 17
4.6 Transferee Succeeds to Transferor's Capital Account ....................... 17
4.7 No Right to Return of Contributions ....................................... 17
4.8 No Interest on Capital Contributions ...................................... 17
4.9 Loans to the Company ...................................................... 17
4.10 No Repayment Liability .................................................... 17
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V ALLOCATIONS AND DISTRIBUTIONS ............................................... 18
5.1 Allocation of Profits and Losses .......................................... 18
5.2 Special Allocations ....................................................... 18
5.3 Curative Allocations ...................................................... 20
5.4 Loss Limitation ........................................................... 20
5.5 Other Allocation Rules .................................................... 20
5.6 Tax Allocations ........................................................... 21
5.7 Distributions ............................................................. 21
5.8 Tax Withholding Obligations Constitute a Distribution ..................... 22
ARTICLE VI BOARD OF DIRECTORS .......................................................... 22
6.1 Board of Directors ........................................................ 22
6.2 Qualifications of Directors ............................................... 22
6.3 Election of Directors ..................................................... 22
6.4 Removal of Directors ...................................................... 22
6.5 Vacancies ................................................................. 22
6.6 Annual Meeting ............................................................ 23
6.7 Regular Meetings .......................................................... 23
6.8 Special Meetings .......................................................... 23
6.9 Quorum, Voting ............................................................ 23
6.10 Executive Committee ....................................................... 23
6.11 Compensation .............................................................. 23
6.12 Number of Districts ....................................................... 24
6.13 Districting Committee ..................................................... 24
6.14 Counties and Districts .................................................... 24
6.15 Directors and Districts ................................................... 25
6.16 Board Actions Requiring Approval of Members ............................... 25
6.17 Absent Directors .......................................................... 26
6.18 Action Without Meeting .................................................... 26
6.19 Telephonic Meetings ....................................................... 26
ARTICLE VII DUTIES OF DIRECTORS ........................................................ 26
7.1 General Powers ............................................................ 26
7.2 Employment of President and Chief Executive Officer ....................... 27
7.3 Bonds and Insurance ....................................................... 27
7.4 Accounting System and Audit ............................................... 27
7.5 Agreements with Members ................................................... 27
7.6 Depository ................................................................ 27
ARTICLE VIII BOARD OFFICERS; PRESIDENT AND CHIEF
EXECUTIVE OFFICER ......................................................... 27
8.1 Election of Board Officers ................................................ 27
8.2 Duties of Chairman ........................................................ 28
8.3 Duties of Vice Chairman ................................................... 28
8.4 Duties of Secretary ....................................................... 28
8.5 Duties of President and Chief Executive Officer ........................... 28
8.6 Compensation .............................................................. 29
8.7 Special Powers ............................................................ 29
ARTICLE IX REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS ................................ 29
9.1 Required Records .......................................................... 29
9.2 Books of Account .......................................................... 30
9.3 Tax Characterization, Returns, Elections and Information .................. 30
9.4 Tax Matters Partner; Tax Audit Costs ...................................... 30
ARTICLE X TRANSFER OF MEMBER INTERESTS ................................................ 31
10.1 Restrictions on Transfer. ................................................. 31
10.2 Conditions Precedent to Transfers ......................................... 32
10.3 Substitution of Member .................................................... 32
10.4 Effective Date of Transfer ................................................ 33
10.5 Distributions and Allocations in Respect to Transferred Interest .......... 33
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI DISSOLUTION AND WINDING UP ....................................... 34
11.1 Liquidating Events ............................................. 34
11.2 Winding Up ..................................................... 34
11.3 Distributions Upon Dissolution ................................. 34
11.4 Compliance With Regulations; Deficit Capital Accounts .......... 35
11.5 Deemed Distribution and Recontribution ......................... 35
11.6 Allocations During Period of Liquidation ....................... 35
11.7 Character of Liquidating Distributions ......................... 36
ARTICLE XII MEMBERS BOUND BY AGREEMENT ....................................... 36
ARTICLE XIII INDEMNIFICATION OF DIRECTORS AND EMPLOYEES ...................... 36
13.1 Indemnity of Directors, Employees and Other Agents ............. 36
ARTICLE XIV MISCELLANEOUS .................................................... 37
14.1 Entire Agreement ............................................... 37
14.2 Amendment ...................................................... 37
14.3 Conflict with Articles ......................................... 37
14.4 Certificates of Membership Interest ............................ 37
14.5 Severability ................................................... 37
14.6 Remedies ....................................................... 38
14.7 Consent and Waiver ............................................. 38
14.8 No Third Party Beneficiary ..................................... 38
14.9 Notices ........................................................ 38
14.10 Binding Effect ................................................. 38
14.11 Necessary Instruments and Acts ................................. 39
14.12 Number and Gender .............................................. 39
14.13 Interpretation ................................................. 39
14.14 Counterparts ................................................... 39
14.15 Governing Law .................................................. 39
SCHEDULE A
</TABLE>
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MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
THIS OPERATING AGREEMENT is entered into and made effective as of the 22nd
day of January, 1999 by and between Minnesota Corn Processors, LLC, a Colorado
limited liability company (the "Company"), and the members of the Company who
are identified as such on the Membership Register from time to time
(collectively, the "Members").
RECITALS
WHEREAS, the Members have caused the Company to be formed under the laws of
the State of Colorado for the following purposes: (a) to acquire all of the
businesses and assets of Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation (the "Cooperative"); and (b) to operate the corn
processing and marketing business currently operated by the Cooperative; and (c)
for any other lawful purpose. The Members hereby adopt this Agreement as the
Operating Agreement of the Company as contemplated by Section 7-80-108 of the
Colorado Limited Liability Company Act.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
of the Members contained herein, and the mutual benefits to be gained by the
performance hereof, each of the Members agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in the Act. Unless defined specifically herein, terms
relating to a limited liability company shall have the meanings given in or
interpreted under the Colorado Limited Liability Company Act.
1.2 Terms Defined Herein. The following capitalized words and phrases shall
have the following respective meanings as used herein, except as may be
otherwise expressly provided in this Agreement or unless the context otherwise
specifies.
"ACT" means the Colorado Limited Liability Company Act, as amended, and
any successor thereto.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Unit
Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of
the end of the relevant allocation period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Unit Holder is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"AFFILIATE" means, with respect to a specified Person, any Person,
directly or indirectly, through one or more intermediaries, controlling or
controlled by, or under common control with a specified Person. The term
"control", as used in the preceding sentence, means with respect to a
corporation the right to exercise, directly or indirectly, more than 50% of the
voting rights attributable to the controlled
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corporation, and, with respect to any partnership, trust or other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"AGREEMENT" means this Operating Agreement of Minnesota Corn Processors,
LLC, as amended, modified or supplemented from time to time, including any
schedules to this Agreement. Words such as "herein", "hereinafter", "hereof",
and "hereunder" refer to this Agreement.
"ARTICLES OF ORGANIZATION" means the Articles of Organization filed on
behalf of the Company with the Secretary of State of Colorado, as from time to
time amended.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company established by Article VI. For purposes of the Act, the "Board" or
"Board of Directors" shall mean the board of managers of the Company.
"CAPITAL ACCOUNT" means, with respect to any Unit Holder, the Capital
Account maintained for such Person in accordance with the provisions of Section
4.2 herein.
"CAPITAL CONTRIBUTIONS" means, with respect to any Unit Holder, the
amount of money and the Gross Asset Value of any property (other than money) and
the agreed value of services rendered or the obligation to perform services
which are contributed to the capital of the Company with respect to the Units
held by such Person pursuant to the terms of this Agreement.
"CERTIFICATE OF MEMBERSHIP INTEREST" means a certificate or other
evidence of ownership of the Units adopted by the Company pursuant to Section
14.4 of this Agreement.
"CLASS A MEMBER" means a Member that owns Class A Units.
"CLASS B MEMBER" means a Member that owns Class B Units.
"CLASS A UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a voting Membership
Interest.
"CLASS B UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a non-voting Membership
Interest.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"COMPANY" shall have the meaning assigned to that term in the first
paragraph of this Agreement.
"COMPANY MINIMUM GAIN" shall have the same meaning as "partnership
minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"COMPETITOR" means (i) each Person identified as a Competitor on Schedule
A attached hereto and the successors and assigns thereof; (ii) any other Person
identified by the Company as a Competitor; and (iii) any officer or director of
any Person identified in (i) and (ii) hereof.
"DEPRECIATION" means, for each allocation period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such allocation period, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such allocation period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such allocation period bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such allocation period is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors.
"DIRECTOR" or "DIRECTORS" means the natural persons elected, appointed,
or otherwise designated as directors by the Members to direct the business and
affairs of the Company as provided in Article VI. For purposes of the Act, the
directors shall be deemed to be the "managers" of the Company.
"ESTABLISHED VALUE" means a per-Unit value established by the Board of
Directors from time to time, which shall be based on (i) seventy-five percent
(75%) of the fair market value for the Units, as
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determined by the Board of Directors using reasonable valuation methods; or (ii)
the book value of the Units as shown on the Company's most recent audited
financial statements, whichever is less.
"EVENT OF DISASSOCIATION" shall have the meaning assigned to that term in
Section 3.15 of this Agreement.
"GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset, as determined by
the Board of Directors, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 4.3 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values (taking Code Section 7701(g)
into account), as determined by the Board of Directors as of the following
times: (i) the acquisition of an additional interest in the Company by any new
or existing Member in exchange for more than a DE MINIMIS Capital Contribution;
(ii) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company property as consideration for an interest in the Company; and
(iii) the liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this paragraph shall be made only if the Board of Directors reasonably
determines that such adjustment is necessary to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets distributed to
any Member shall be adjusted to equal the gross fair market value (taking Code
Section 7701(g) into account) of such asset on the date of distribution as
determined by the Board of Directors; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the
definition of "Profits and Losses" or Section 5.2(c) hereof; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv)
to the extent that an adjustment pursuant to subparagraph (b) is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"INITIAL AGREED VALUE PER UNIT" shall mean the fair market value of each
Unit received by the Initial Members pursuant to the Transaction Agreement in
the merger of MCP Colorado into the Company as determined by a nationally
recognized appraisal firm selected by the Cooperative. The Board of Directors
shall be authorized to make reasonable modifications to such appraisal to
reflect intervening events between the date of the appraisal and the transfer of
Units to the Initial Members pursuant to the merger of MCP Colorado with and
into the Company pursuant to the Transaction Agreement.
"INITIAL MEMBERS" shall mean, (i) prior to the merger of MCP Colorado
into the Company pursuant to the Transaction Agreement, the Cooperative, and
(ii) from and after the effective time of the merger of MCP Colorado into the
Company pursuant to the Transaction Agreement, each Person who receives Class A
Units or Class B Units pursuant to such merger.
"LIQUIDATING EVENT" shall have the meaning assigned to that term in
Section 9.1 of this Agreement.
"LOSSES" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
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"MCP COLORADO" means Minnesota Corn Processors Colorado, the transitory
Colorado cooperative into which the Cooperative will be merged in anticipation
of the merger of such Colorado cooperative into the Company.
"THE COOPERATIVE" means Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation.
"MEMBER" means any Person (i) who has become a Member pursuant to the
terms of this Agreement, and who is designated as a Member on the Membership
Register, (ii) who is the owner of 1,000 or more Units, and (iii) who has not
ceased to be a Member pursuant to the terms of this Agreement. "Members" means
all such Persons.
"MEMBERSHIP INTEREST" means a Unit Holder's share of the Profits and
Losses of the Company and a Unit Holder's right to receive distributions of cash
or other assets of the Company in accordance with the terms of this Agreement.
"MEMBERSHIP REGISTER" shall have the meaning specified in Section 3.1 of
this Agreement.
"1996 LOSS PAYABLE" shall mean the unpaid portion of the Cooperative's
operating loss for fiscal year ended September 30, 1996 that was assessed
against a unit of equity participation by the Board of Directors of The
Cooperative and which pursuant to the Transaction Agreement continues as a lien
in favor of the Company against a Class A Unit into which such unit of equity
participation has been converted.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"PERSON" means any individual, partnership, limited liability company,
association, corporation, cooperative, estate, trust or other entity, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
"PROFITS" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
"PROFITS AND LOSSES" shall mean, for each allocation period, an amount
equal to the Company's taxable income or loss for such allocation period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition of "Profits" and "Losses" shall be added to such taxable income or
loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the Gross Asset Value of the asset) or an item of loss (if the
adjustment decreases the Gross Asset Value of the asset) from the disposition of
such asset and shall be taken into account for purposes of computing Profits or
Losses;
(d) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Property disposed of,
notwithstanding that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
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(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Regulations
Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Section 5.2 or Section 5.3
hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"PROPERTY" means all real and personal property, including cash, acquired
and operated by the Company and any improvements thereto, and shall include both
tangible and intangible property.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code as such Regulations may be amended from
time to time (including corresponding provisions of succeeding Regulations).
"SPECIAL FINANCIAL INTERESTS" means the nonvoting financial interest in
the Company issued to the former holders of nonqualified written notices of
allocation issued by the Cooperative, the stated amounts of which shall
correspond to the stated amounts of such nonqualified written notices of
allocation.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 5.3
hereof.
"TAX WITHHOLDING OBLIGATION" means an amount equal to the portion of any
amount allocated, credited, or otherwise distributable to a Unit Holder which
the Company is required to withhold for income tax purposes pursuant to any
applicable federal, state, local, or other governmental agency law or
regulation.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated January 22,
1999 between the Cooperative, MCP Colorado and the Company.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer, sale
or other disposition and, as a verb, to voluntarily or involuntarily transfer,
sell, or otherwise dispose of, but shall not include a pledge, grant of a
security interest or other encumbrance.
"UNIT" means the unit of measurement used herein to quantify the
Membership Interest of a Unit Holder, consisting of Class A Units or Class B
Units, as reflected on the Membership Register. A Unit Holder's Membership
Interest as quantified by the number of Units owned by such Person may be
evidenced by a certificate of Units issued by the Company, which certificate
shall contain appropriate restrictive legends.
"UNIT HOLDER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"UNIT HOLDER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"UNIT HOLDER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"UNIT HOLDERS" means all Persons who hold Units. "Unit Holder" means any
one of the Unit Holders.
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ARTICLE II
THE LIMITED LIABILITY COMPANY
2.1 Formation; Effective Date of Agreement. The Company is formed as a
Colorado limited liability company pursuant to and in accordance with the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. This Agreement is made effective as of the formation of the Company.
2.2 Name. The name of the Company shall be Minnesota Corn Processors, LLC.
All business of the Company shall be conducted in such name or in trade names
approved by the Board of Directors. The name of the Company may be changed from
time to time in accordance with the Act.
2.3 Business Purpose. The purpose of the Company is to conduct any business
activity in which a limited liability company organized under the Act may be
lawfully engaged in and to conduct any and all activities related or incidental
thereto, including the acquisition, improvement, leasing, operation, mortgage
and disposition of personal property and real property.
2.4 Powers. The Company may carry on any lawful business, purpose or
activity permitted by the Act and shall possess and may exercise all the powers
and privileges granted by the Act or by any other law or by this Agreement,
together with any powers incidental, necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the Company.
2.5 Duration. The duration of the Company shall be perpetual, unless
dissolved earlier as provided herein.
2.6 Registered Office and Registered Agent. The location of the registered
office and the name of the registered agent of the Company in the State of
Colorado shall be as stated in the Articles of Organization. The registered
office and registered agent of the Company in the State of Colorado may be
changed from time to time by the Board of Directors.
2.7 Principal Office. The principal office of the Company shall be located
at 901 North Highway 59, Marshall, MN 56258, or at such other place(s) within or
without the State of Minnesota as the Board of Directors may determine from time
to time.
2.8 Title to Property; No Agency Power. All Property originally transferred
to or subsequently acquired by or on account of the Company shall be owned by
the Company as an entity. No Member, Director or Unit Holder shall have any
ownership interest in such Property in such Person's individual name or right.
The Company shall hold all of its Property in the name of the Company and not in
the name of any Member, Director or Unit Holder. Subject to the approval by the
Board or the Members when required by this Agreement, title to Property may be
transferred by an instrument of transfer executed by the appropriate officer of
the Company as designated by the Board. No Member, Director or Unit Holder has
the authority, in said Person's capacity as Member, Director or Unit Holder, to
transfer title to Property or bind the Company or the other Members or any one
of them. Only duly authorized officers, directors and agents of the Company
shall have the authority to bind the Company.
2.9 Limited Liability of Members and Directors. Except as otherwise
expressly provided by the Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company. No Member, Director or other
agent of the Company, solely by reason of such status, shall be personally
liable, under a judgment, decree or order of a court, or in any other manner,
for the acts, debts, obligations or liabilities of the Company, whether arising
in contract, tort or otherwise.
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ARTICLE III
MEMBERS
3.1 Membership. There shall be no Members admitted to the Company except as
provided in this Agreement. The name, address, Capital Contribution, and class
of membership of each Member shall be set forth in a membership register
maintained by the Company at its principal office or by a duly appointed agent
of the Company (the "Membership Register"), which shall be modified from time to
time as additional Units are issued and as Units are transferred pursuant to
Article X. Prior to the merger of MCP Colorado into the Company pursuant to the
Transaction Agreement, the Cooperative (or its successors) shall be the only
Member of the Company. From and after the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the membership
interest of the Cooperative (or its successor) in the Company shall be canceled,
and (A) The Class A Members of this Company shall include, (i) initially, the
members of the Cooperative who receive Class A Units from the Cooperative
pursuant to the Transaction Agreement; and (ii) individuals, corporations or
other entities who acquire a minimum of 1,000 Class A Units in a permitted
transfer or in an offering by the Company of additional Class A Units. The Class
B Members of this Company shall include, (i) initially, Archer Daniels Midland
Company, as the transferee of Class B Units from the Cooperative pursuant to the
Transaction Agreement, and (ii) individuals, corporations or other entities who
acquire a minimum of 1,000 Class B Units in a permitted transfer.
The holders of Special Financial Interests shall not be Members of the
Company and shall have no rights other than the rights to distributions
specified in Sections 5.7(a) and 11.3(d) and the corresponding right to income
allocations provided in Section 5.2(i).
3.2 Ownership of Membership Interests.
(a) Minimum Ownership of Units Required. Each Class A Member shall own
not less than 1,000 Class A Units. Each Class B Member shall own not less than
1,000 Class B Units.
(b) Limitation on Ownership of Membership Interests.
(i) Number of Units. No Class A Member shall own more than two
percent (2%) of the total issued and outstanding Class A Units of the Company.
For purposes of this Section 3.2(b), the number of Units owned by any Member
shall include Units owned by the member's spouse, children, parents, or brothers
and sisters, and by any Affiliate of the Member or the Member's spouse,
children, parents or brothers and sisters.
(ii) Competitors. Any Competitor of the Company shall not be eligible
to own Class A Units of the Company.
(c) Company Right to Purchase Units. If (A) any Member holds at any time
less than the minimum number of Units required by Section 3.2(a) or more than
the maximum number of Units permitted under Section 3.2(b), and fails to cure
such violation of this Agreement within one (1) year after notice thereof by the
Company, or (B) any Member is or becomes a Competitor, that Member's voting
rights, if any, shall be suspended as provided in Section 3.14 below and, in
addition, the Company shall have the right (but not the obligation) to purchase,
and the Member shall be required to sell (i) in the case of a violation of
Section 3.2(a), all of the Units owned by such Member, and (ii) in the case of a
violation of Section 3.2(b), that Member's Units in excess of the two percent
(2%) maximum provided for in Section 3.2(b). The purchase price for Units
purchased by the Company under this Section shall be an amount equal to the
Established Value of the Units determined at the time the Company notifies the
Member of the violation and shall be payable, at the Company's option, in one
lump sum or equal installments over a period of five (5) years, with interest at
a rate equal to the interest rate for 91 day U.S. Treasury bills, adjusted
quarterly.
3.3 Classes of Membership. This Company has two (2) classes of Membership.
(a) Class A Membership. Class A Membership (as quantified by the Class A
Units) shall be the voting Membership Interests of the Company.
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(b) Class B Membership. Class B Membership (as quantified by the Class B
Units) shall be non-voting Membership Interests.
3.4 Voting.
(a) Units Required. Each Class A Member owning a minimum of 5,000 Class A
Units shall be entitled to one (1) vote with respect to any matter to be
determined by the Members under this Agreement or the Act, regardless of the
number of Units owned by such Class A Member. Any Class A Member who is in
default of any of its obligations under this Agreement shall not be entitled to
vote on any matter during the period of such default. When determining the
aggregate number of Units held by a Member for purposes of this Agreement, the
Units held by any Member who is in default of any obligations under this
Agreement shall be excluded. Each Member other than individual Members shall
designate in writing to the Chairman of the Board of the Company the name of one
(1) individual authorized to act as such Member's representative with respect to
all matters covered by this Agreement, including the right to exercise such
Member's voting rights hereunder. The Company and the other Members shall be
entitled to rely on the authority of the individual so designated. Each Member
may change such Member's representative by written notice to the Chairman of the
Board at such Member's sole discretion.
A member absent from any meeting may submit an absentee vote on any
motion, resolution, or amendment to be acted upon at such meeting, provided an
absentee ballot has been specifically authorized by the Board of Directors. An
absentee vote must be cast on a ballot containing the exact text of the proposed
motion, resolution, or amendment by delivering such ballot to the Secretary at
the principal office of the Company by hand, by United States mail (with postage
prepaid thereon), by facsimile, by overnight courier or by any other reasonable
means, to arrive not later than five (5) days prior to the day of the meeting at
which the vote is taken.
(b) Non-Voting Members. Any Class A Member owning at least 1,000 Class A
Units but less than 5,000 Class A Units as of the date upon which notice of
action to be taken by the Members is mailed to the Members shall be considered a
non-voting member of the Company and shall not be entitled to vote on any
matters reserved to the Members. The Units held by such non-voting members shall
be excluded in determining the aggregate number of Units held by Members.
Notwithstanding that such member is not entitled to vote, the Units in the hands
of the non-voting member shall continue to be subject to all the applicable
provisions of this Agreement, including but not limited to the transfer
restrictions set forth in Article X hereof. In the event a non-voting member
purchases the minimum number of Class A Units required to receive voting rights
under Section 3.4(a) hereof, such member shall be entitled to the voting rights
set forth in Section 3.4(a) without any further action by the Members or the
Board.
3.5 Place of Meetings. Each meeting of the Members shall be held at such
place as the Board of Directors may from time to time designate in writing to
the Members.
3.6 Regular Meetings. Regular meetings of the Members shall be held not
less than once per year, at such time and place as determined by the Board of
Directors; provided however, that if a regular meeting has not been held within
six (6) months after the end of each fiscal year of the Company any Member may
demand a meeting of the members by written demand to the Board of Directors.
3.7 Special Meetings. Special meetings of the Members may be called by the
Board of Directors or twenty percent (20%) of the Class A Members. The business
transacted at a special meeting of the Members is limited to the purposes stated
in the notice of the meeting.
3.8 Notice of Meetings. Written notice of each meeting of the Members,
stating the date, time and place, and in the case of a special meeting, the
purpose of the meeting, shall be given in writing at least fourteen (14) days
and not more than sixty (60) days prior to the meeting to every Member entitled
to vote at such meeting.
3.9 Waiver of Notice. A Member may waive the notice of meeting required
under this Article. A written notice of waiver signed by the Member entitled to
notice is effective whether given before, during or after the meeting.
Attendance by a Member at a meeting is waiver of notice of that meeting,
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unless the Member objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and thereafter
does not participate in the meeting.
3.10 Quorum. The presence (in person or by proxy or mail ballot) of at
least ten percent (10%) of the Class A Members is required for the transaction
of business at a meeting of the Members; provided, however, that a quorum shall
never be more than fifty (50) Class A Members.
3.11 Proxies; Mail Ballots. Voting by proxy or by mail ballot shall be
permitted on any matter if authorized by the Board of Directors.
3.12 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Members of the Company may be taken without a meeting by
written action signed by all of the Class A Members. The written action is
effective when signed by all the Class A Members, unless a different effective
time is provided in the written action.
3.13 Telephonic Meetings. Any regular or special meeting of the Members may
be taken by telephonic or electronic conference or any other means of
communication through which the Members can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Member, and if the Members participating in the conference would be sufficient
to constitute a quorum at a meeting. Participation in a telephonic, electronic,
or other conference of such means constitutes presence at the meeting in person
or by proxy if all the other requirements are met.
3.14 Termination of Membership. A Member's Membership Interest terminates
and such Person ceases to be a Member on and following the occurrence of any of
the following events (each an "Event of Disassociation"):
(a) Complete Transfer. The Member transfers all of the Member's Units,
regardless of whether the transferee(s) is admitted as a substitute Member
pursuant to Section 10.5 of this Agreement;
(b) Dissolution of Member. Any event terminating the existence of any
non-individual Member;
(c) Death of Individual Member. The death of any individual Member;
(d) Withdrawal. The Member resigns by written notice to the Chairman of
the Board; or
(e) Disqualification. The Member holds less than the minimum number of
Units required by Section 3.2(a) or more than the maximum number of Units
permitted by Section 3.2(b) and fails to cure the applicable violation within
one (1) year after notice thereof by the Company.
A Person who has ceased to be a Member shall be considered a non-member
Unit Holder only, and shall have no right to any information or accounting of
the affairs of the Company, shall not be entitled to inspect the books or
records of the Company, shall not be entitled to vote on any matters reserved to
the Members, and shall not have any of the other rights of a Member under the
Act or this Agreement. The Units held by such Unit Holder shall be excluded in
determining the aggregate number of Units held by Members. Notwithstanding that
such Unit Holder is no longer a Member, the Units in the hands of such Unit
Holder shall continue to be subject to all the applicable provisions of this
Agreement, including but not limited to the transfer restrictions set forth in
Article X hereof.
In the event such Unit Holder ceased to be a Member pursuant to Section
3.14(f), such Unit Holder shall be reinstated as a Member without any further
action by the Members or the Board upon a showing to the Board that such Unit
Holder meets the minimum and maximum requirements set forth in Section 3.2.
3.15 Continuation of the Company. The Company shall not be dissolved upon
the occurrence of an Event of Disassociation or any other event which is deemed
to terminate the continued membership of a Member. The Company's affairs shall
not be required to be wound up. The Company shall continue without dissolution.
3.16 No Obligation to Purchase Units. No Member whose membership in the
Company terminates shall have any right to demand or receive a return of such
terminated Member's Capital Contributions.
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Neither the remaining Members nor the Company shall have any obligation to
purchase or redeem the Units of any such terminated Member.
3.17 Advance Consent to Certain Substitute Members.
(a) Substitute Member -- Dissolution. In the event of dissolution of a
non-individual Member, any person who continues the business of a dissolved
Member, or who holds some or all of the Membership Interest of the dissolved
Member, shall be admitted as a substitute Member; provided, however, that such
Person shall not be admitted as a substitute Member unless and until each of the
conditions set forth in Section 10.3 of this Agreement have been satisfied.
(b) Substitute Member -- Death. In the event of the death of an
individual Member, each of the following Persons who holds some or all of the
Membership interest of the deceased Member shall be admitted as a substitute
Member; provided, however, that such Person shall not be admitted as a
substitute Member unless and until each of the conditions set forth in Section
10.3 of this Agreement are satisfied at the time such Person becomes the holder
of all or some of such Membership Interest:
(i) the estate of the deceased Member;
(ii) the surviving joint tenant of the Membership Interest; and
(iii) any distributee of the estate of the deceased Member, including
any trustee(s) of a trust which holds some or all of the
Membership Interest of the deceased Member.
The rights of the estate of a deceased Member shall be exercised by the personal
representative(s) appointed by the court as the personal representative of the
estate of a deceased Member.
(c) Substitute Member. The purpose of this Section 3.17 is that the
voting rights of any Member whose membership is terminated by the dissolution or
death of such Member shall follow the Membership Interest of such Member
notwithstanding such termination, through the automatic substitution of the
holder of all or some of such Membership Interest as a substitute Member. Any
Person who is admitted as a substitute Member under this Section 3.17 shall be
entitled to all of the rights and bound by the obligations of, the Member for
which it is substituted.
3.18 Compliance with Articles of Organization and Operating Agreement. Each
Member of the Company is subject to the terms of the Company's Articles of
Organization, this Agreement, and such other reasonable policies and procedures
as the Board from time to time adopts to implement the terms of this Agreement.
3.19 No Dissenters' Rights. No Member or Unit Holder shall have any
dissenters' rights or appraisal rights or other similar rights as a result of
any merger or consolidation or other action involving the Company approved by
the Class A Members as provided in Section 6.16 hereof.
ARTICLE IV
CAPITAL
4.1 Units. The Company shall be authorized to issue 500,000,000 Units. Of
the total number of Units authorized in this Section 4.1, 350,000,000 Units are
hereby designated as Class A Units, and 150,000,000 Units are hereby designated
as Class B Units.
4.2 Capital Accounts. A Capital Account maintained for such Unit Holder in
accordance with the following provisions:
(a) To each Unit Holder's Capital Account there shall be credited (i)
such Unit Holder's Capital Contributions (determined in the case of the initial
Unit Holders as provided in Section 4.3(a)), (ii) such Unit Holder's
distributive share of Profits and any items in the nature of income or gain
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any Company liabilities assumed by such Unit Holder or which
are secured by any Property distributed to such Unit Holder.
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(b) To each Unit Holder's Capital Account there shall be debited (i) the
amount of money and the Gross Asset Value of any Property distributed to such
Unit Holder pursuant to any provision of this Agreement, (ii) such Unit Holder's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any liabilities of such Unit Holder assumed by the Company
or which are secured by any Property contributed by such Unit Holder to the
Company;
(c) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the Board of Directors shall determine that it is prudent, it may modify
the manner in which the Capital Accounts are maintained, provided that it is not
likely to have a material effect on the amounts distributed to any Person
pursuant to Article XI hereof upon the dissolution of the Company. The Board of
Directors also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Unit Holders and the
amount of capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
4.3 Initial Issuance of Units; Offering of Additional Units.
(a) MCP Colorado will fund the Company on the Closing Date specified in
the Transaction Agreement by contributing all of its assets to the Company in
consideration of the Company's assumption of all of MCP Colorado's liabilities
and other obligations. On the effective date of the merger of MCP Colorado into
the Company, each member of MCP Colorado shall be issued the number and class of
Units that corresponds to the number and class of units such member held in MCP
Colorado. As the result of the foregoing transactions, the Unit Holder shall be
deemed to have made a Capital Contribution in the amount the product of (i) the
number of Units distributed to such Unit Holder, times (ii) the Initial Agreed
Value Per Unit.
(b) From time to time, the Board of Directors may authorize the issuance
and sale by the Company of additional Units (within the limits set forth in
Section 4.1) but only for the purpose of funding costs of expansion of or
necessary maintenance and repairs to the Company's corn wet-milling and related
facilities, funding costs of construction or acquisition of new or existing
facilities or business related or complimentary to the Company's existing
business, funding losses which cannot reasonably be expected to be funded with
future earnings, and/or funding equity contributions to joint ventures involved
in businesses which are related or complimentary to the Company's existing
businesses. In the event the Company offers such additional Units, the Company
shall offer the existing Class A and Class B Members the opportunity to purchase
additional Units so as to permit them to maintain at a constant level their then
existing percentage of the total Class A or Class B Units.
4.4 No Capital Calls. The Company may not require Members to make
additional contributions of capital to the Company for any reason, except that
the Board of Directors may, in its discretion, by resolution require that any
Member to whom a Tax Withholding Obligation is attributable make an additional
contribution to the capital of the Company in an amount equal to such Tax
Withholding Obligation less the amount of any loans for such purpose made to the
Company pursuant to Section 4.9.
4.5 Tax Withholding Obligations. The Board of Directors may, in its
discretion, by resolution require that any Member to whom a Tax Withholding
Obligation is attributable make an additional contribution to the capital of the
Company in an amount equal to such Tax Withholding Obligation less the amount of
any loans for such purpose made to the Company pursuant to Section 4.9.
4.6 Transferee Succeeds to Transferor's Capital Account. Any transfers
permitted by Article X of this Agreement by a Member to a transferee of all or
a part of such Member's Membership Interest in
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the Company shall vest in such transferee (and such transferee shall become a
successor in interest) the interest of the transferor Member's Capital Account
to the extent of the Membership Interest transferred.
4.7 No Right to Return of Contributions. The Members (including terminated
members) shall have no right to the withdrawal or the return of their respective
Capital Contributions except to the extent set forth in Article XI upon
liquidation of the Company.
4.8 No Interest on Capital Contributions. Other than Distributions
authorized pursuant to Article V or Article XI, no Member shall be entitled to
receive any interest or other property on account of the Member's Capital
Contributions to the Company.
4.9 Loans to the Company. A Member may lend money to the Company if
authorized by the Board of Directors. Any such loan shall not be treated as a
Capital Contribution for any purpose and shall not entitle the Member to any
increase in such Member's Membership Interest. The Company shall be obligated to
such Member for the amount of any such loan, with interest thereon at such rate
as may have been agreed upon by the Board of Directors.
4.10 No Repayment Liability. No Member, Director or other Unit Holder shall
be personally liable for the repayment of any Capital Contributions of any other
Unit Holder.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocation of Profits and Losses. After giving effect to the special
allocations set forth in Section 5.2 or Section 5.3, Profits and Losses for any
accounting period shall be allocated to the Unit Holders and shall be divided
among them in proportion to the number of Units held by each as set forth on the
Membership Register.
5.2 Special Allocations. The following special allocations shall be made
in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article V, if there is a net decrease in Company Minimum Gain during any
allocation period, each Unit Holder shall be specially allocated items of
Company income and gain for such allocation period (and, if necessary,
subsequent allocation periods) in an amount equal to such Unit Holder's share of
the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Unit Holder pursuant thereto. The items to be so allocated shall be
determined in accordance with sections 1.704-2(f) (6) and 1.704-2(j) (2) of the
Regulations. This Section 3.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this Article V, if there is a net decrease in Unit Holder Nonrecourse Debt
Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any
allocation period, each Unit Holder who has a share of the Unit Holder
Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt,
determined in accordance with Section 1.704-2(i) (5) of the Regulations, shall
be specially allocated items of Company income and gain for such allocation
period (and, if necessary, subsequent allocation periods) in an amount equal to
such Unit Holder's share of the net decrease in Unit Holder Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i) (4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Unit Holder pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections 1.704-2(i)
(4) and 1.704-2(j) (2) of the Regulations. This Section 5.2(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i) (4) of
the Regulations and shall be interpreted consistently therewith.
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(c) Qualified Income Offset. In the event any Unit Holder unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Unit Holder in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of the
Unit Holder as quickly as possible, provided that an allocation pursuant to this
Section 5.2(c) shall be made only if and to the extent that the Unit Holder
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if this Section
5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Unit Holder has a deficit
Capital Account at the end of any allocation period which is in excess of the
sum of (i) the amount such Unit Holder is obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Unit Holder shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 5.2(d) shall be made only if and to the
extent that such Unit Holder would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article V have been
made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any allocation
period shall be specially allocated to the Unit Holders in proportion to their
respective Units held.
(f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse
Deductions for any allocation period shall be specially allocated to the Unit
Holder who bears the economic risk of loss with respect to the Unit Holder
Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Unit Holder in complete
liquidation of such Unit Holder's interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Unit Holders in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to
whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Units. Any income, gain,
loss or deduction realized as a direct or indirect result of the issuance of
Units by the Company shall be allocated among the Unit Holders so that, to the
extent possible, the net amount of such items, together with all other
allocations under this Agreement to each Unit Holder shall be equal to the net
amount that would have been allocated to each such Unit Holder if the items had
not been realized.
(i) Allocations Relating to Special Financial Interests. If a
distribution is made to a holder of a Special Financial Interests under Section
5.7(a) or 11(d), a corresponding amount of income, gain, gross receipts or gross
sales proceeds, as determined by the Board of Directors, shall be allocated to
such holder.
5.3 Curative Allocations. The allocations set forth in Sections 5.2(a)
through 5.2(g) and 5.4 (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations. It is the intent of the Unit
Holders that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section 5.3.
Therefore, notwithstanding any other provision of this Section 3 (other than the
Regulatory Allocations), the Board of Directors shall make such offsetting
special allocations of Company income, gain, loss or deduction in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Unit Holder's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Unit Holder would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 5.1 and 5.2(h).
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5.4 Loss Limitation. Losses allocated pursuant to Section 5.1 hereof shall
not exceed the maximum amount of Losses that can be allocated without causing
any Unit Holder to have an Adjusted Capital Account Deficit at the end of any
allocation period. In the event some but not all of the Unit Holders would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 5.1 hereof, the limitation set forth in this Section 5.4
shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable
to any Unit Holder as a result of such limitation shall be allocated to the
other Unit Holders in accordance with the positive balances in such Unit
Holder's Capital Accounts so as to allocate the maximum permissible Losses to
each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Board of
Directors using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Unit Holders are aware of the income tax consequences of the
allocations made by this Article 5 and hereby agree to be bound by the
provisions of this Article 5 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Unit Holder's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a) (3), the Unit Holders' interests in Company
profits are in proportion to their Units held.
To the extent permitted by Section 1.704-2(h) (3) of the Regulations, the
Company shall endeavor to treat distributions as having been made from the
proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to
the extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Unit Holder.
5.6 Tax Allocations. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss, and deduction with respect to any
Property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Unit Holders so as to take account of any
variation between the adjusted basis of such Property to the Company for federal
income tax purposes and its initial Gross Asset Value using such allocation
method as may be provided by Regulations and selected by the Board of Directors.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Board of Directors in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Unit Holder's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
5.7 Distributions. Cash shall be distributed in the amounts and at such
times as the Board may determine in its discretion; provided, however, that the
declaration and making of any distribution shall in all instances be limited by
applicable provisions of the Act. Subject to such limitation, the Board shall
endeavor to cause the Company to make cash distributions at such times and in
such amounts as will permit the Unit Holders to make timely payment of income
taxes payable with respect to ownership of Units. Distributions shall be in such
amounts as the Board determines is not required to be retained by the Company to
meet the reasonably foreseeable cash requirements and needs of the business and
activities of the Company and to establish an adequate reserve for the payment
of Company liabilities and contingencies. Distributions of cash or other
property hereunder shall be made as follows:
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(a) In the sole discretion of the Board of Directors, distributions may
be made prorata to the holders of Special Financial Interests in any amount up
to the stated amount thereof provided that the aggregate amount of such
distributions shall not exceed the aggregate stated amount of all Special
Financial Interests.
(b) Except as otherwise provided in Section 5.7(a), to the Unit Holders
to be divided among them in proportion to the number of Units held by each Unit
Holder.
(c) Any distribution may be made subject to offset for any debt or other
amount owed by the Unit Holder or the holder of a Special Financial Interest to
the Company.
For purposes of determining those Unit Holders entitled to receive
distributions pursuant to this Section 5.7, the Board of Directors may fix in
advance a record date which shall be the first day of any calendar month
following the calendar month in which the Board of Directors declares the
distribution. If no such record date is fixed by the Board, the record date
shall be the first day of the calendar month in which the distribution is to
paid. Notwithstanding the foregoing, distributions made with respect to Units
that are the subject of a Transfer shall be made in accordance with Section 10.6
hereof and distributions made with respect to additional Units issued by the
Company shall be made in accordance with Section 10.6 as if such additional
Units had been the subject of a Transfer.
5.8 Tax Withholding Obligations Constitute a Distribution. Any Tax
Withholding Obligation which is withheld by the Company shall constitute a
distribution of such amount by the Company to the Unit Holder to whom such Tax
Withholding Obligation is attributable.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Board of Directors. Except as otherwise provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Board of Directors as provided herein. Prior to the merger of MCP Colorado into
the Company pursuant to the Transaction Agreement, the Board of Directors shall
consist of the individuals identified as such in the Articles of Organization.
At the effective time of the merger of MCP Colorado into the Company pursuant to
the Transaction Agreement, the Board of Directors shall consist of the Directors
specified in the Transaction Agreement. Thereafter, the Board of Directors shall
consist of twenty-four (24) Directors, who shall be elected by the Class A
Members in accordance with this Article.
6.2 Qualifications of Directors. All Directors elected by the Class A
Members shall be natural persons and must be Class A Members or an elected or
appointed representative of a Class A Member which is other than a natural
person.
6.3 Election of Directors. At each Annual Meeting of the Members, elections
shall be held to fill all vacancies on the Board of Directors. Class A Members
may vote by mail ballot for directors, provided a mail ballot has been
specifically authorized by the Board of Directors. Directors shall be elected
for staggered terms of three (3) years and until a successor is elected and
qualified.
6.4 Removal of Directors. The Board of Directors or any individual director
may be removed from office, with cause, by a vote of a majority of the Class A
Members from the district that elected the director that are present in person
or by mail ballot, and that are entitled to vote at the meeting of the Class A
Members at which said removal of directors is considered. In case any one (1) or
more directors be so removed, successor directors shall be elected at the same
meeting. Such successor directors shall be from the same district or districts
as the director or directors so removed. Notice of a meeting at which any Class
A Members will be voting to remove a director must state removal of directors as
an item to be voted upon at the meeting.
6.5 Vacancies. Whenever a vacancy occurs on the Board of Directors, other
than from expiration of a term of office or removal from office, a majority of
the remaining Directors shall appoint a Member
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from the same district to fill the vacancy until the next Annual Meeting of the
Class A Members, at which time the Members may elect a new Director to fill the
vacancy for the remainder of the term of the vacant Directors.
6.6 Annual Meeting. An annual organizational meeting of the Board of
Directors shall be held within thirty (30) days following each Annual Meeting of
the Class A Members for the purpose of the election of the board officers for
the ensuing year, and to transact such other business as may properly come
before the meeting.
6.7 Regular Meetings. A regular meeting of the Board of Directors shall be
held at such frequency and at such time and place as the Board of Directors may
determine.
6.8 Special Meetings. A special meeting of the Board of Directors shall be
held whenever called by the Chairman or, during his or her absence, by the Vice
Chairman, on forty-eight (48) hours' notice to each Director personally, or by
mail. Special meetings shall be called by the Chairman or Secretary in like
manner and on like notice on the written request of any Director. The purpose of
a special meeting need not be specified in the notice of the meeting. Notice of
any special meeting may be waived by attendance at a meeting, except when a
Director attends a meeting and objects to the transaction of business, or by a
waiver of notice signed before, during, or after the meeting.
6.9 Quorum, Voting. A majority of the Directors in office shall constitute
a quorum necessary to the transaction of business at any annual organizational
meeting, regular meeting, or special meeting of the Board of Directors, but if
less than a quorum is present, those Directors present may adjourn the meeting
from time to time until a quorum shall be present. All questions shall be
decided by a vote of a majority of the Directors present at a meeting.
6.10 Executive Committee. The Board of Directors may designate three (3) or
more Directors, one of whom shall be the Chairman of the Board, to constitute an
Executive Committee. The Board of Directors may elect other Directors as
alternative members of the Executive Committee. To the extent determined by the
Board of Directors, the Executive Committee shall have and exercise the
authority of the Board of Directors in the direction of the Company; provided,
however, that the Executive Committee shall not have the powers of the Board of
Directors in regard to apportionment or distribution of cash, election of
officers, filling vacancies on the Board of Directors, and recommending
amendments to this Agreement. The Executive Committee shall act only in the
interval between meetings of the Board of Directors, and shall be subject at all
times to the control and direction of the Board of Directors. Copies of the
minutes of each Executive Committee meeting shall be mailed to all directors
within seven (7) days following such meeting.
6.11 Compensation. The compensation of the Board of Directors shall be
determined by resolution of the Board of Directors, which shall be presented for
approval to the Class A Members at any Annual Meeting or special meeting, and
when so determined shall be continuing until altered or amended. Board officers
shall be entitled to reimbursement for actual expenses incurred in attending
Board of Directors meetings or in conducting other business of the Company. Such
expense accounts shall be approved by officers of the Board of Directors.
6.12 Number of Districts. The territory in which the Class A Members are
located shall be divided into eight districts. The boundaries of such districts
shall be defined without dividing counties, and the number of Directors
representing each district shall be approximately proportionate to the number of
Class A Members located in that district. Each district shall be represented by
two or more Directors, who shall be elected at the Annual Meeting, as provided
in Section 6.3.
6.13 Districting Committee. Periodically, the Board of Directors may
appoint a Districting Committee. The Districting Committee shall review the
boundaries of the districts, the number of Class A Members located in each
district, and the number of Directors representing each district. The
Districting Committee shall then recommend any changes to said boundaries that
are necessary to maintain equality of representation among such districts.
The boundaries of the districts, the number of Class A Members located in
each district, and the number of Directors representing each district shall be
subject to review by the Districting Committee
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at least every three years. The recommendations of the Districting Committee may
be accepted, rejected, or modified by the Board of Directors. Rather than
appointing a Districting Committee, the Board of Directors may delegate the
duties, powers, rights, and responsibilities described in this Section 6.13 to
any existing committee of the Board of Directors.
6.14 Counties and Districts. Initially, the counties in each of the eight
districts shall be as follows:
(a) District One. District One shall include the following counties in
Minnesota: Anoka, Big Stone, Chisago, Clay, Crow Wing, Dakota, Douglas, Grant,
Hennepin, Kanabec, Kandiyohi, Mahnomen, Meeker, Mille Lacs, Morrison, Norman,
Otter Tail, Pennington, Polk, Pope, Ramsey, Red Lake, Sherburne, Stearns,
Stevens, Swift, Todd, Traverse, Wadena, Washington, Wilkin, and Wright.
(b) District Two. District Two shall include the following counties in
Minnesota: Blue Earth, Carver, Dodge, Faribault, Fillmore, Freeborn, Goodhue, Le
Sueur, McLeod, Mower, Nicollet, Olmsted, Renville, Rice, Scott, Sibley, Steele,
Wabasha, and Waseca.
(c) District Three. District Three shall include Brown County, Redwood
County, and Watonwan County in Minnesota.
(d) District Four. District Four shall include Chippewa County and Lac
Qui Parle County in Minnesota.
(e) District Five. District Five shall include Lincoln County and Yellow
Medicine County in Minnesota, and shall also include the following counties in
South Dakota: Beadle, Bon Homme, Brookings, Brown, Charles Mix, Clark, Clay,
Codington, Deuel, Grant, Hamlin, Kingsbury, Lake, Lincoln, McCook, Miner,
Minnehaha, Moody, Spink, Turner, and Yankton.
(f) District Six. District Six shall include Lyon County in Minnesota.
(g) District Seven. District Seven shall include the following counties
in Minnesota: Cottonwood, Jackson, Martin, Murray, Nobles, Pipestone, and Rock.
District Seven shall also include the following counties in Iowa: Cerro Gordo,
Clay, Chickasaw, Dickinson, Emmet, Lyon, Mitchell, Osceola, Sioux, and
Winnebago.
(h) District Eight. District Eight shall include all of the counties in
Nebraska, and shall also include the following counties in Iowa: Carroll,
Crawford, Davis, Delaware, Dubuque, Fremont, Harrison, Ida, Linn, Louisa, Page,
Pottawattamie, Shelby, Story, and Webster.
If a situation arises where a Class A Member is located in a county or
state which is not designated as part of the any of the eight districts, then
the Board of Directors may add that county or state to whichever of the
districts the Board of Directors determines is most logical, in its sole
discretion, and may notify the affected Member of its decision. The Board of
Directors may take this action without the need for any additional amendments to
this Agreement. The designation of new counties to existing districts by the
Board of Directors under these circumstances shall be reviewed by the
Districting Committee when it is next appointed.
6.15 Directors and Districts. Initially, the number of directors
representing each district shall be as follows:
(a) District One shall be represented by three directors.
(b) District Two shall be represented by three directors.
(c) District Three shall be represented by three directors.
(d) District Four shall be represented by two directors.
(e) District Five shall be represented by three directors.
(f) District Six shall be represented by two directors.
(g) District Seven shall be represented by three directors.
(h) District Eight shall be represented by five directors.
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6.16 Board Actions Requiring Approval of Class A Members. The Board may not
authorize or approve the following actions without the affirmative vote or prior
consent of sixty-six and two-thirds percent (66.67%) of the Class A Members
voting in person, by proxy or by mail ballot at a duly called Members meeting:
(a) Any amendment of this Agreement or the Articles of Organization of
the Company;
(b) Approve any merger, consolidation, share or interest exchange, or
sale of all or substantially all of the assets of the Company (other
than the merger contemplated in the Transaction Agreement and a
merger of a wholly-owned subsidiary with and into the Company in
which the Company is the surviving entity);
(c) Voluntarily cause the dissolution of the Company; and
(d) Authorize any transaction, agreement or action on behalf of the
Company that is not related or complimentary to the Company's
existing business or would make it impossible for the Company to
carry on the primary business of the Company.
6.17 Board Actions Requiring Approval of Class B Members. Neither the Board
nor the Class A Members may authorize or approve the following actions without
the prior consent of the holders of sixty-six and two-thirds percent (66.67%) of
the Class B Units:
(a) Make any material change in the principal business of the Company;
(b) Sell, lease, liquidate, exchange, dispose of or otherwise transfer
substantially all of the assets of the Company; or
(c) Embark upon any capital expenditure project that would involve the
expenditure by the Company of any amount in excess of Two Hundred
and Fifty Thousand Dollars ($250,000.00).
Holders of Class B Units shall not unreasonably withhold any consent
required of it pursuant to this Section 6.17. For purposes of assessing the
reasonableness of the withholding by any holder of Class B Units of consent
hereunder, reference shall be made to the viewpoint of a lender or passive
investor that occupies the position of sole holder of the Class B Units.
6.18 Absent Directors. A Director of the Company may give advance written
consent or opposition to a proposal to be acted upon at a Board meeting. If the
Director is not present at the meeting, consent or opposition to a proposal does
not constitute presence at the meeting for purposes of determining existence of
a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
Director has consented or objected.
6.19 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Directors may be taken without a meeting by written action
signed by all of the Directors. The written action is effective when signed by
all the Directors, unless a different effective time is provided in the written
action.
6.20 Telephonic Meetings. Any regular or special meeting of the Directors
may be taken by telephonic or electronic conference or any other means of
communication through which the Directors can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Director, and if the Directors participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic,
electronic, or other conference of such means constitutes presence at the
meeting in person if all the other requirements are met.
ARTICLE VII
DUTIES OF DIRECTORS
7.1 General Powers. The Board of Directors shall direct the business and
affairs of the Company, and shall exercise all of the powers of the Company
except such as are by this Agreement conferred
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upon or reserved to the Members. The Board of Directors shall adopt such
policies, rules, regulations, and actions not inconsistent with law or this
Agreement as it may deem advisable.
7.2 Employment of President and Chief Executive Officer. The Board of
Directors shall select and employ a President and Chief Executive Officer and
fix the compensation of such President and Chief Executive Officer. The Board of
Directors may terminate the employment of the President and Chief Executive
Officer with or without cause at any time, unless an enforceable written
contract between the Company and the President and Chief Executive Officer
provides otherwise.
7.3 Bonds and Insurance. The Board of Directors shall require the President
and Chief Executive Officer and all officers, agents, and employees charged by
the Company with responsibility for the custody of any of its funds or property
to give adequate bonds. Such bonds, unless cash security is given, shall be
furnished by a responsible bonding company and approved by the Board of
Directors, and the cost thereof shall be paid by the Company. The Company shall
provide for the adequate insurance of the property of the Company, or property
which may be in the possession of the Company, or stored by it, and not
otherwise adequately insured, and in addition adequate insurance covering
liability for accidents to all employees and the public.
7.4 Accounting System and Audit. The Board of Directors shall cause to be
installed and maintained an adequate system of accounts and records. At least
once in each year the books and accounts of the Company shall be audited by an
independent auditing firm, and the report of such audit shall be made at the
next Annual Meeting of the Class A Members.
7.5 Agreements with Members. The Board of Directors and such duly
authorized officers shall have the power to carry out all agreements of the
Company with its Members in every way advantageous to the Company representing
the Members collectively.
7.6 Depository. The Board of Directors may direct management to approve one
or more banks or other financial institutions to act as depositories of the
funds of the Company, and to determine the manner of receiving, depositing, and
disbursing the funds of the Company, the form of checks, and the person or
persons by whom they shall be signed, with the power to change such banks and
the person or persons signing such checks and the form thereof at will.
ARTICLE VIII
BOARD OFFICERS; PRESIDENT AND CHIEF EXECUTIVE OFFICER
8.1 Election of Board Officers. At each Annual Meeting of the Board of
Directors, the Board of Directors shall elect the principal officers of the
Board, which principal officers shall be a Chairman, a Vice Chairman, a
Secretary and such other Board officers as may be established by the Board. The
Chairman, Vice Chairman and Secretary must be Directors of the Company. A board
officer may be removed by the Board of Directors whenever in its judgment the
best interests of the Company will be served thereby. If any vacancy shall occur
among the principal officers of the Board, it shall be filled by the Board of
Directors at its next regular meeting following the vacancy.
8.2 Duties of Chairman. The Chairman shall:
(a) preside over all meetings of the Members of the Company, the
Executive Committee, and the Board of Directors;
(b) call special meetings of the Board of Directors;
(c) perform all acts and duties usually performed by an executive and
presiding officer; and
(d) sign all membership certificates and such other papers of the Company
as the Chairman may be authorized or directed to sign by the Board of Directors;
provided, however, that the Board of Directors may authorize any person to sign
any or all checks, contracts, and other documents in writing on behalf of the
Company. The Chairman shall perform such other duties as may be prescribed by
this Agreement or by the Board of Directors.
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8.3 Duties of Vice Chairman. In the absence or disability of the Chairman,
the Vice Chairman shall perform the duties of the Chairman.
8.4 Duties of Secretary. The Secretary shall attend all meetings of the
Company and the Board of Directors, all meetings of the Executive Committee, and
all meetings of the Members, and shall record all votes and keep minutes of all
proceedings. The Secretary shall keep a complete record of all meetings of the
Company and of the Board of Directors. The Secretary shall sign such papers
pertaining to the Company as he or she may be authorized or directed to sign by
the Board of Directors. The Secretary shall serve all notices required by law
and by this Agreement, including notices of meetings, and shall make a full
report of all matters and business pertaining to his or her office to the
Members at the Annual Meeting. The Secretary shall cause to be kept and
maintained complete membership records, shall make all reports required by law,
and shall perform such other duties as may be required of him or her by the
Company or the Board of Directors. An Assistant Secretary, if any, shall perform
the duties of the Secretary during the absence or disability of the Secretary.
8.5 Duties of President and Chief Executive Officer. The President and
Chief Executive Officer shall be employed by the Board of Directors as an
officer of the Company and shall perform such duties as the Board of Directors
may prescribe, and shall exercise such authority as the Board of Directors may
from time to time vest in him or her. Under the direction of the Board of
Directors, the President and Chief Executive Officer shall have general charge
of the ordinary and usual business operations of the Company, including the
purchasing, marketing and handling of all products and supplies handled by the
Company.
The President and Chief Executive Officer shall cause all money belonging
to the Company that comes into his or her possession in the name of the Company
to be deposited in a bank or other financial institution selected by the Board
of Directors, and if authorized to do so by the Board of Directors, shall make
all disbursements by check or electronic transfer of funds therefrom for the
ordinary and necessary expenses of the business in the manner and form
prescribed by the Board of Directors. On the appointment of his or her
successor, the President and Chief Executive Officer shall deliver to said
successor all money and property belonging to the Company which he or she has in
his or her possession or over which he or she has control.
The President and Chief Executive Officer shall be required to maintain the
Company's records and accounts in such a manner that the true and correct
condition of the Company's business may be ascertained therefrom at any time.
The President and Chief Executive Officer shall render annual and periodic
statements in the form and in the manner prescribed by the Board of Directors,
and shall carefully preserve all books, documents, correspondence, and records
of whatever kind pertaining to the business of the Company that may come into
his or her possession.
The President and Chief Executive Officer shall employ, supervise, and
dismiss any or all officers or employees of the Company, except agents or
counsel specifically employed by the Board of Directors. The President and Chief
Executive Officer may designate employees of the Company as various vice
presidents or assistant secretaries of the Company and define their duties and
responsibilities as such officers of the Company.
8.6 Compensation. The salary, compensation, and other benefits of the
President and Chief Executive Officer and all Board officers shall be fixed by
the Board of Directors; provided, however, that no officer who is a director may
take part in the vote on his or her own compensation.
8.7 Special Powers. The President and Chief Executive Officer or any
officer may be vested by the Board of Directors with any power and charged with
any duty not contrary to law or inconsistent with this Agreement.
ARTICLE IX
REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS
9.1 Required Records. The Board shall cause to be maintained the required
records of the Company in a complete and accurate manner. The Board shall cause
to be maintained the required
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records on a current basis, including, without limitation, the recording of any
transfer of all or part of a Member's Membership Interest pursuant to Article X
hereof in the required records as soon as the Board receives notice of such
transfer. The Board shall conspicuously note in the required records that the
Members' Membership Interests are governed by this Agreement and that this
Agreement contains a restriction on the assignment of Membership Interests. The
required records at all times shall be kept at the principal executive office of
the Company or such other place or places within the United States as the Board
may determine. Each Member shall have access to and may inspect and copy the
required records as provided to the extent allowable and in accordance with the
Act. The costs of such inspection and copying shall be borne by the inspecting
Member.
9.2 Books of Account. The Board shall cause to be kept complete and
accurate accounts of all transactions of the Company in proper books of account
and shall enter or cause to be entered therein a full and accurate account of
each and every Company transaction in accordance with accounting principles and
methods as determined by the Board with the advice of the Company's accountants.
The books of account of the Company shall be closed and balanced as of the end
of each fiscal year. The books of account and other records of the Company shall
at all times be kept at the principal executive office of the Company or such
other place or places within the United States as the Board may determine. Each
Member shall have access to and may inspect and copy any of such books and
records at all reasonable times and in accordance with the Act. The costs of
such inspection and copying shall be borne by the inspecting Member.
9.3 Tax Characterization, Returns, Elections and Information. The Members
acknowledge that the Company will be characterized as a partnership for federal
income tax purposes. Management shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state or
local tax returns required to be filed by the Company and, except as otherwise
provided in any Board resolution, shall have complete discretion and authority
concerning any tax election required or permitted to be made by the Company.
Notwithstanding the preceding sentence, the Company shall not make an election
under Section 754 of the Code unless the Board shall determine by resolution
that the tax benefits made available to affected transferee Members as a result
of such an election are likely to be of sufficient magnitude to justify the
increased cost and administrative burden of accounting for the resulting basis
adjustments under Sections 734(b) and 743(b) of the Code.
Management shall deliver or cause to be delivered to each Member within a
reasonable time after the end of each fiscal year or, if applicable, after the
extended due date of the Company's tax return, such information concerning the
Company as is necessary or appropriate to permit each Member to properly
complete any federal, state or local income tax return in which Members must
include items attributable to the Company. Management shall endeavor to provide
sufficient information from time to time during the year as may be appropriate
to permit the Members to pay federal, state and local estimated taxes.
9.4 Tax Matters Partner; Tax Audit Costs. The Tax Matters Partner shall be
the person so designated in accordance with Sections 6221-33 of the Code and
related Treasury Regulations and such person shall assume the responsibilities
assigned to tax matters partners therein. The Board may designate the Tax
Matters Partner in accordance with said sections and regulations or, if no such
designation is made, the Tax Matters Partner shall be the Chairman of the Board
or, if such Chairman is not a Member, the Director who is a Member and who,
among the other Directors who are members, individually owns the largest number
of Units.
If on advice of counsel the Tax Matters Partner determines that it is in
the best interest of the Members that the final results of any administrative
proceeding be appealed by the institution of legal proceedings, the Tax Matters
Partner is hereby authorized to commence such legal proceedings in such forum as
the Tax Matters Partner, on advice of counsel, determines to be appropriate. In
the event the Tax Matters Partner selects a forum for appeal in which the Unit
Holders are required to deposit a proportionate share of any disputed tax before
making such appeal, the Tax Matters Partner must obtain the approval of the
Board and the consent of Members owning a majority of the Voting Interests. If
such approval and consent is obtained, each of the Unit Holders will be required
to deposit and pay such Unit Holder's proportionate share of such disputed tax
before participating in such appeal. The Unit Holders
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acknowledge that such deposit under current law does not earn interest and that
the failure to so deposit may preclude a Unit Holder from pursuing any other
sort of appeal by court action.
The Tax Matters Partner shall not be liable to any other Unit Holder for
any action taken with respect to any such administrative proceedings or appeal
so long as the Tax Matters Partner is not grossly negligent or guilty of willful
misconduct. Any costs paid or incurred by the Tax Matters Partner in connection
with its activities in such capacity shall be reimbursed by the Company.
Each Unit Holder acknowledges that any cost a Unit Holder may incur in
connection with an audit of such Unit Holder's income tax return, including an
audit of such Unit Holder's investment in this Company, is such Unit Holder's
sole responsibility and obligation. The Company, the Board, the officers and the
Tax Matters Partner shall not be liable to any Unit Holder for reimbursement or
sharing of any such costs.
ARTICLE X
TRANSFER OF MEMBER INTERESTS
10.1 Restrictions on Transfer.
(a) No Person shall Transfer any Unit if, in the determination of the
Board, such Transfer would cause the Company to be treated as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code.
(b) No Person shall Transfer any Unit except with the prior consent of
the Board of Directors.
(c) Any Transfer of a Unit that would result in a violation of the
restrictions in Section 10.1(a) or (b) shall be null and void, and the intended
transferee shall acquire no rights in such Unit.
10.2 Conditions Precedent to Transfers. The Board of Directors may not
recognize any Transfer of Units unless and until the Company has received:
(a) an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that such Transfer
may be lawfully made without registration or qualification under applicable
state and federal securities laws, or such Transfer is properly registered or
qualified under applicable state and federal securities laws;
(b) such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the opinion of
counsel to the Company to effect such Transfer, except that in the case of a
Transfer of Units involuntarily by operation of law, the Transfer shall be
confirmed by presentation of legal evidence of such Transfer, in form and
substance satisfactory to the Company;
(c) the transferor's Certificate of Membership Interest;
(d) the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the interest
transferred, and any other information reasonably necessary to permit the
Company to file all required federal and state tax returns and other legally
required information statements or returns;
(e) evidence satisfactory in form and substance to the Board that the
transferee meets the minimum and maximum Unit ownership requirements set forth
in Section 3.2 of this Agreement;
(f) in the case of a Transfer of Class A Units subject to a 1996 Loss
Payable, full payment in cash to offset such Member's 1996 Loss Payable; and
(g) in the case of a Transfer of Class B Units, a written agreement
executed by the transferee to the effect that transferee is not entitled to the
benefits of the Stockholder Agreement between the Cooperative and Archer Daniels
Midland Corporation dated August 27, 1997;
provided, however, the Board may waive any or all of the conditions stated
above. In addition, the Board may adopt such other conditions on the Transfer of
Units as it deems appropriate.
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10.3 Substitution of Member. A transferee of Units shall be admitted as a
substitute Member only if (i) the provisions of this Article have been met, (ii)
the transferee executes an instrument satisfactory to the Company accepting and
adopting the terms and provisions of this Agreement and (iii) the transferor
pays all reasonable expenses incurred by the Company in connection with the
Transfer and, if applicable, the transferee's admission as a new Member. The
admission of a transferee as a substitute Member shall not result in the release
of the Member who transferred the Unit from any liability that such Member may
have to the Company.
10.4 Effective Date of Transfer. Any Transfer of a Unit shall be deemed
effective as of the day of the month and year (i) which the Transfer occurs (as
reflected by the form of Assignment) and (ii) the transferee's name and address
and the nature and extent of the Transfer are reflected in the records of the
Company. The name, address, Capital Contributions, class and number of Units
held by each Member shall be set forth on the Membership Register, which shall
be modified from time to time as Transfers occur or as additional Units are
issued pursuant to the provisions of this Agreement. The appropriate Company
records shall be conspicuously noted to prevent the Transfer of Units otherwise
than in accordance with this Article X. Notwithstanding the foregoing, the
effective date of a Transfer for purposes of allocation of Profits and Losses
and for distributions shall be determined pursuant to Section 10.5. Any
transferee of a Unit shall take subject to the restrictions on transfer imposed
by this Agreement.
10.5 Distributions and Allocations in Respect to Transferred Interest. If
any Unit is transferred during any accounting period in compliance with the
provisions of this Article X, then Profits and Losses, each item thereof, and
all other items attributable to such Units for such accounting period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during such accounting period in accordance with
Code Section 706(d). Solely for purposes of making such allocations and
distributions, the Company shall use the interim closing of the books method and
the convention that recognizes such Transfer as of the beginning of the calendar
month following the calendar month in which the notice, documentation and
information requirements of this Article X have been substantially complied
with. All distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board shall have the power and authority to adopt another reasonable method
and/or convention with respect to such allocations and distributions; provided,
that reasonable notice of any change is given to the Members in advance of the
change. Neither the Company, the Board, any Director nor any Member shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 10.5, whether or not the Board or any Director or the
Company or any Member has knowledge of any Transfer of ownership of any interest
in the Company.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Liquidating Events. The Company shall be dissolved and commence
winding up and liquidating upon the affirmative vote of at least sixty-six and
two-thirds percent (66.67%) of the Class A Members voting at a duly called
meeting.
As further provided in Article III herein, the dissociation and termination
of the continued membership of a Member shall not cause the dissolution of the
Company and shall not require the Company's business to be wound-up, so long as
the Company has the minimum number of Members required under applicable state
law within ninety (90) days following the Event of Dissociation.
11.2 Winding Up.
(a) Notice of Dissolution. As soon as possible following the occurrence
of a Liquidating Event, the appropriate representative of the Company shall
execute a notice of dissolution in such form as shall be prescribed by the
Colorado Secretary of State, setting forth the information required under the
Act, and shall file same with the Colorado Secretary of State's office.
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(b) Winding Up of Business. Upon filing a notice of dissolution with the
Colorado Secretary of State, the Company shall cease to carry on its business,
except insofar as may be necessary for the winding up of its business, but its
separate existence shall continue until a certificate of termination has been
issued by the Secretary of State or until a decree dissolving the Company has
been entered by a court of competent jurisdiction.
11.3 Distributions Upon Dissolution. Upon dissolution, the business of the
Company shall be wound up, the Directors shall take full account of the Company
assets and liabilities, and all assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. If any assets are not sold,
gain or loss shall be allocated to the Unit Holders in accordance with Article V
as if such assets had been sold at their fair market value at the time of the
liquidation. If any assets are distributed to a Unit Holder, rather than sold,
the distribution shall be treated as a distribution equal to the fair market
value of the assets at the time of the liquidation. The assets of the Company
shall be applied and distributed in the following order of priority:
(a) First, to the payment of all debts and liabilities of the Company,
including all fees due the Directors, and including any loans or advances that
may have been made by the Members to the Company, in the order of priority as
provided by law;
(b) Second, to the establishment of any reserves deemed necessary by the
Directors or the Person winding up the affairs of the Company for any contingent
liabilities or obligations of the Company; and
(c) Third, to the Unit Holders, ratably in proportion to the credit
balances in their respective Capital Accounts after and including all
allocations to the Unit Holders and holders of Special Financial Interests under
Article V herein, including the allocation of any income, gain or loss from the
sale, exchange or other disposition (including a deemed sale pursuant to this
Section 11.3) of the Company's assets, in an amount equal to value of their
units as established by the Board of Directors;
(d) Fourth, to the holders of Special Financial Interests in proportion
to their stated amounts in amounts equal to the stated amount of such interests
less any previous distributions made with respect to such Interests; and
(e) Fifth, the balance, if any, to the Unit Holders, ratably in
proportion to the credit balances in their respective Capital Accounts, in an
amount equal to the aggregate credit balances in the Capital Accounts after and
including all allocations to the Unit Holders and holders of Special Financial
Interests under Article V herein, including the allocation of any income, gain
or loss from the sale, exchange or other disposition (including a deemed sale
pursuant to this Section 11.3) of the Company's assets.
11.4 Compliance With Regulations; Deficit Capital Accounts. In the event
the Company is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XI to
the Unit Holders who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit
balance in his Capital Account (after giving effect to all contributions,
distributions and allocations for all allocation periods, including the
allocation period during which such liquidation occurs), such Unit Holder shall
have no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Company or to any other Person for any purpose whatsoever. In the discretion
of the Company, a pro rata portion of the distributions that would otherwise be
made to the Unit Holders pursuant to this Article XI may be:
(a) Distributed to a trust established for the benefit of the Unit
Holders for the purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such trust shall be distributed to
the Unit Holders from time to time, in the reasonable discretion of the trustee,
in the same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the Unit Holders pursuant to Section
11.3 hereof; or
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(b) Withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such withheld amounts
shall be distributed to the Unit Holders as soon as practicable.
11.5 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article XI, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has
occurred, the Property shall not be liquidated, the Company's debts and other
liabilities shall not be paid or discharged, and the Company's affairs shall not
be wound up. Instead, solely for federal income tax purposes, the Company shall
be deemed to have distributed the property in-kind to the Unit Holders, who
shall be deemed to have taken subject to all debts of the Company and other
liabilities all in accordance with their respective Capital Accounts.
Immediately thereafter, the Unit Holders shall be deemed to have recontributed
the property in-kind to the Company, which shall be deemed to have taken subject
to all such liabilities.
11.6 Allocations During Period of Liquidation. During the period commencing
on the first day of the Fiscal Year during which a Dissolution Event occurs and
ending on the date on which all of the assets of the Company have been
distributed to the Unit Holders pursuant to Section 11.3 hereof (the
"Liquidation Period"), the Unit Holders shall continue to share Profits, Losses,
gain, loss and other items of Company income, gain, loss or deduction in the
manner provided in Article V hereof.
11.7 Character of Liquidating Distributions. All payments made in
liquidation of the interest of a Unit Holder shall be made in exchange for the
interest of such Unit Holder in property pursuant to Section 736(b)(1) of the
Code, including the interest of such Unit Holder in Company goodwill.
ARTICLE XII
MEMBERS BOUND BY AGREEMENT
By their purchase or acceptance of Units, the Initial Members and any
Person who is admitted as an additional Member or a substitute Member shall be
subject to and bound by all the provisions of this Agreement, whether or not
such Member executes this Agreement or any other document referring to this
Agreement. However, such Person shall execute and acknowledge any documents and
instruments, in form and substance satisfactory to the Board, as the Board shall
deem necessary or advisable to effect such admission and to confirm the
agreement of the Person being admitted to be bound by all the terms and
provisions of this Agreement. Upon demand by the Board, such Person shall pay
all reasonable expenses in connection with such admission as a Member,
including, without limitation, legal fees and costs of preparation of any
amendment to or restatement of this Agreement, if necessary or desirable in
connection therewith.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES
13.1 Indemnity of Directors, Employees and Other Agents.
(a) To the fullest extent permitted by law, the Company shall indemnify
each Director from and make advances for expenses incurred by the Director in
connection with any claim made against the Director arising from an action or
omission made in good faith or which he or she reasonably believed to be in the
best interests of the Company, or any other such claim to the maximum extent
permitted under the Act, except to the extent the claim for which
indemnification is sought results from an act or omission of the Director
constituting fraud or willful misconduct.
(b) Except as may otherwise be provided in an agreement with an agent or
employee, the Company shall indemnify its employees and other agents who are not
Directors to the fullest extent permitted by law.
(c) Expenses (including legal fees and expenses) incurred by a Director
in defending any claim, demand, action, suit or proceeding subject to subsection
(a) above shall be paid by the Company
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in advance of the final disposition of such claim, demand, action, suit or
proceeding upon receipt of an undertaking (which need not be secured) by or on
behalf of the Director to repay such amount if it shall ultimately be finally
determined by a court of competent jurisdiction and not subject to appeal, that
the Director is not entitled to be indemnified by the Company as authorized
hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties and supersedes any prior agreement or understanding among them
with respect to the subject matter hereof.
14.2 Amendment. This Agreement may not be modified, amended, or
supplemented, without (a) the affirmative vote or prior consent of sixty-six and
two-thirds percent (66.67%) of the Class A Members voting in person, by proxy,
or by mail ballot at a duly called Members meeting (except that the Board may
amend Section 6.17(c) without the consent or approval of any Class A Members),
and (b) in the case of any modification, amendment or supplement which otherwise
modifies or amends Section 6.17 hereof or the last sentence of Section 4.3(b)
hereof, or which otherwise modifies the rights and benefits afforded to the
holders of Class B Units, the prior consent of the holders of sixty-six and
two-thirds percent (66.67%) of the Class B Units.
14.3 Conflict with Articles. In the event of any conflict between the
Articles of Organization and this Agreement, the provisions of this Agreement
shall govern to the extent not contrary to law.
14.4 Certificates of Membership Interest. Units shall be evidenced by
certificates of membership interest. At the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the Company
adopts the certificates of the Cooperative as the Certificates of Membership
Interest of the Company. Upon any Transfer of Units in accordance with Article
X, the Board of Directors will issue a new form of certificate under the
Company's own name (a "LLC Certificate") representing the Units so transferred;
provided, however, that the issuance of LLC Certificates shall not invalidate or
otherwise affect the validity of certificates of the Cooperative representing
outstanding Units owned by the Initial Members. Each LLC Certificate shall bear
a legend referring to the restrictions set forth in Article X.
14.5 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable. This
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement. The
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
14.6 Remedies. The parties agree that in the event of a breach of this
Agreement, the non-breaching party or parties shall be entitled to the remedies
of specific performance and injunctive relief, except to the extent prohibited
by the Act. Such remedies shall be in addition to any other remedies available
at law or in equity with the pursuit of any one or more remedies not being a bar
to the pursuit of other remedies which may be available. The parties further
agree that the breaching party or parties shall pay all reasonable costs,
expenses, and attorneys' fees incurred by the non-breaching party or parties in
pursuing their remedies for a breach of this Agreement.
14.7 Consent and Waiver. No consent under and no waiver of any provision of
this Agreement on any one occasion shall constitute a consent under or waiver of
any other provision on said occasion or on any other occasion, nor shall it
constitute a consent under or waiver of the consented to or waived provision on
any other occasion. No consent or waiver shall be enforceable unless it is in
writing and signed by the party against whom such consent or waiver is sought to
be enforced.
14.8 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the Company, the Members and the Unit
Holders, and their respective successors and assigns.
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No other Person will have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise; provided, however, that the Company shall have
standing to bring an action to recover damages provided for by the Act or to
seek remedies otherwise provided by law in the event of a breach or threatened
breach of this Agreement.
14.9 Notices. All notices, offers, demands, or other communications
required or permitted under this Agreement shall be in writing, signed by the
Person giving the same. Notice shall be treated as given when personally
received or (except in the event of a mail strike) when sent by United States
Mail to a Member or Unit Holder at the address as shown from time to time on the
records of the Company. Any Member or Unit Holder may specify a different
address by written notice to the Company.
14.10 Binding Effect. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Company,
the Members and Unit Holders, parties and their legal representatives, heirs,
administrators, executors, successors and assigns. Members and Unit Holders
shall be bound by and shall be entitled to the benefits of this Agreement by
their purchase or acceptance of Units whether or not they sign this Agreement or
any document referring to this Agreement.
14.11 Necessary Instruments and Acts. The parties covenant and agree that
they shall execute any further instruments and shall perform any acts which are
or may become necessary to effectuate and to carry out the terms and conditions
of this Agreement.
14.12 Number and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
14.13 Interpretation. All references herein to Articles, Sections and
subsections refer to Articles, Sections and subsections of this Agreement. All
Article, Section and subsection headings are for reference purposes only and
shall not affect the interpretation of this Agreement.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all parties. Each party shall become bound by this Agreement immediately upon
signing any counterpart, independently of the signature of any other party.
14.15 Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the internal laws of the
State of Colorado, without regard to its conflicts or choice-of-law rules.
* * * * * * *
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Company and the Cooperative as of the date set forth in
the first paragraph.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
27
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SCHEDULE A
COMPETITORS
Archer Daniels Midland Company
Cargill, Incorporated
Corn Products Company (Corn Products International, Inc.)
A.E. Staley Manufacturing Company (Tate & Lyle, PLC)
Cerestar USA, Inc.
National Starch and Chemical Company
Penford Products Company (Penford Corporation)
Roquette America, Inc.
28
EXHIBIT 3.5
BYLAWS
OF
MINNESOTA CORN PROCESSORS COLORADO
ARTICLE I.
MEMBERSHIP
SECTION 1 - QUALIFICATIONS. Initially, Minnesota Corn Processors, Inc., a
Minnesota cooperative ("MCP Minnesota"), shall be the only member of this
Cooperative. From and after the effective time of the merger of MCP Minnesota
into this Cooperative, pursuant to the Transaction Agreement among this
Cooperative, MCP Minnesota and Minnesota Corn Processors, LLC (the "Transaction
Agreement"), the members of MCP Minnesota shall become members of this
Cooperative as provided in the Transaction Agreement. Thereafter, all producers
of agricultural products (individuals, firms, partnerships, corporations, or
associations) who are eligible for membership and who have acquired a minimum of
five (5) shares of Common Stock shall be members. In every case following the
adoption of this Bylaw, any producer entering into a patronage relationship with
this Cooperative who is eligible for membership and not already a member becomes
a member (unless the producer or this Cooperative expressly states otherwise)
upon:
(a) becoming the holder of five (5) shares of Common Stock, and
(b) upon receiving from this Cooperative written notification and a copy of
the Bylaw (Consent Bylaw) providing for consent to take patronage distributions
into income.
SECTION 2 - TERMINATION OF MEMBERSHIP. At any time if a member:
(a) has become ineligible for membership; or
(b) has failed to patronize this Cooperative for a period of one year or
more; or
(c) has moved from the territory served by this Cooperative; or
(d) dies or ceases to be an agricultural producer (or in the case of a
cooperative association, ceases to be a bona fide association of agricultural
producers); or
(e) whenever the Board of Directors by resolution finds that a member has:
(i) intentionally or repeatedly violated any provision of the Articles
of Incorporation or the Bylaws of this Cooperative; or
(ii) breached any contract with this Cooperative; or
(iii) remained indebted to this Cooperative for ninety (90) days after
such indebtedness first became payable; or
(iv) willfully obstructed any lawful purpose or activity of this
Cooperative;
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then, in any such event, the Board of Directors, in its sole discretion,
may terminate that member's membership.
Termination shall be either by purchasing the Common Stock of such member
by tendering to the member the par value thereof or the book value thereof if
lesser than the par value, less any indebtedness due the Cooperative; or
purchasing the Common Stock of such member by tendering to the member a
nonvoting certificate of interest or nonvoting stock representing the member's
interest at the time of tender, such interest to be ascertained as specified
above. Such nonvoting certificate of interest or nonvoting stock shall not be
entitled to receive interest or dividends, since no interest or dividends are
paid on Common Stock. In either case, the voting stock of said member shall be
canceled, and said member shall thereafter have no voting rights in this
Cooperative. No action taken hereunder shall impair the obligations or
liabilities of either party under any contract with the Cooperative, which may
be terminated only as provided therein.
SECTION 3 - POLICY OF CLOSED COOPERATIVE. It is the policy of this
Cooperative that the Cooperative shall be a closed cooperative association, that
is, one in which no new members shall be admitted other than by transfer of
existing shares or by an expansion of the Cooperative's capacity to process
corn. No part of an individual member's savings of this Cooperative shall be
used by this Cooperative to finance expansion of the Cooperative's capacity to
process corn beyond the capacity derived from the original Uniform Marketing
Agreements entered into with the members, unless the approval of that member has
been obtained by the Cooperative.
ARTICLE II.
MEETINGS OF MEMBER-SHAREHOLDERS
SECTION 1 - ANNUAL MEETING. The Annual Meeting of the member-shareholders
of the Cooperative shall be held on a date fixed by the Board of Directors
falling within six (6) months following the close of the fiscal year, at a time
and place fixed by the Board of Directors.
SECTION 2 - SPECIAL MEETINGS. Special meetings of the member-shareholders
of the Cooperative shall be held at the place specified in the notice of the
meeting. Any such special meeting may be called by the Board of Directors, or
twenty percent (20%) of the member-shareholders. Each call for a special meeting
shall be in writing, signed by the person or persons making the same, addressed
and delivered to the Secretary, and shall state the time, place, and purposes of
such meeting.
SECTION 3 - NOTICE OF MEETINGS
(a) Notice of Special Meetings. The Chairman or the President shall give
notice of a special meeting of the member-shareholders by:
(i) publication in a legal newspaper published in the county of the
principal place of business of the Cooperative;
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(ii) publication in a magazine, periodical, or other publication of the
Cooperative that is regularly published by or on behalf of the Cooperative
and circulated generally among its member-shareholders; or
(iii) mailing the notice of the special meeting of the
member-shareholders to each member-shareholder personally at the
member-shareholder's last known post office address, which for a member
cooperative means notice mailed to the Secretary of the Cooperative.
The notice of a special meeting of the member-shareholders shall state the
time, place, and purpose of the special meeting. No business shall be transacted
at special meetings other than that referred to in the notice.
When a special meeting is called by written petition of the
member-shareholders, the notice of the special meeting shall be issued within
ten days from and after the date of the presentation of the petition of the
member-shareholders, and the special meeting must be held by 30 days after the
date of the presentation of the petition of the member-shareholders.
The notice of a special meeting of the member-shareholders must be
published at least two weeks before the date of the meeting or mailed at least
15 days before the date of the meeting.
(b) Notice of the Annual Meeting. The Secretary shall give notice of the
Annual Meeting of the member-shareholders by:
(i) publication in a legal newspaper published in the county of the
principal place of business of the Cooperative;
(ii) publication in a magazine, periodical, or other publication of the
Cooperative that is regularly published by or on behalf of the Cooperative
and circulated generally among its member-shareholders; or
(iii) mailing the notice of the Annual Meeting of the
member-shareholders to each member-shareholder personally at the
member-shareholder's last known post office address, which for a member
cooperative means notice mailed to the Secretary of the Cooperative.
The notice of the Annual Meeting of the member-shareholders must be
published at least two weeks before the date of the meetings or mailed at least
15 days before the date of the meeting. Such notice shall state the time and
place of the meeting.
SECTION 4 - VOTING. Each member-shareholder shall be entitled to one vote
upon each matter submitted to a vote at a meeting of the member-shareholders.
Voting by proxy and cumulative voting shall not be permitted, and no individuals
shall be permitted to cast more than one (1) vote on any matters submitted to a
vote at a member-shareholder meeting. If two (2) or more persons hold one
membership in partnership, joint tenancy, or otherwise, the vote of such
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membership shall be cast by any one of such persons. A member-shareholder absent
from any meeting may submit a mail vote on any motion, resolution, or amendment
to be acted upon at such meeting, provided a mail ballot has been specifically
authorized by the Board of Directors. A mail vote must be cast on a ballot
containing the exact text of the proposed motion, resolution, or amendment by
depositing such ballot in the United States mail, with postage prepaid thereon,
addressed to the Secretary at the principal office of the Cooperative not later
than five (5) days prior to the day of the meeting at which the vote is taken.
SECTION 5 - QUORUM. Ten percent (10%) of the members present in person or
represented by mail vote shall constitute a quorum necessary to the transaction
of business at any Annual Meeting or special meeting of the member-shareholders;
provided, however, that a quorum shall never be more than fifty (50) members.
ARTICLE III.
DIRECTORS
SECTION 1 - NUMBER AND QUALIFICATIONS. Until the effective date of the
merger of MCP Minnesota into this Cooperative pursuant to the Transaction
Agreement, this Cooperative shall have a Board of Directors comprised of three
(3) persons as specified in the Articles of Incorporation. Thereafter, the
Cooperative shall have a Board of Directors comprised of twenty-four (24)
persons. Each director shall be a member or an elected or appointed
representative of a member who is other than a natural person, including the
elected or appointed representative of a family farm corporation or an
authorized farm corporation.
SECTION 2 - ELECTION OF DIRECTORS. At each Annual Meeting of the
member-shareholders, elections shall be held to fill all vacancies on the Board
of Directors. Member-shareholders may vote by mail ballot for directors,
provided a mail ballot has been specifically authorized by the Board of
Directors. Directors shall be elected for staggered terms of three (3) years and
until a successor is elected and qualified.
SECTION 3 - REMOVAL OF DIRECTORS. The Board of Directors or any individual
director may be removed from office, with cause, by a vote of a majority of the
member-shareholders of the Cooperative that are present in person or by mail
ballot and that are entitled to vote at the meting of the member-shareholders at
which said removal of directors is considered. In case any one (1) or more
directors be so removed, successor directors shall be elected at the same
meeting. Such successor directors shall be from the same district or districts
as the director or directors so removed.
SECTION 4 - VACANCIES. Whenever a vacancy occurs on the Board of Directors,
other than from expiration of a term of office or removal from office, a
majority of the remaining directors shall appoint a member from the same
district to fill the vacancy until the next Annual Meeting of the member-
shareholders, at which time the member shall elect a new director to fill the
vacancy for the remainder of the term of the vacant director.
SECTION 5 - ANNUAL MEETING. An annual organizational meeting of the Board
of Directors shall be held within ten (10) days following each Annual Meeting of
the member-
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shareholders for the purpose of the election of the officers of the Cooperative
for the ensuing year, and to transact such other business as may properly come
before the meeting.
SECTION 6 - REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held each month upon such notice and at such time and place as the
Board of Directors may determine.
SECTION 7 - SPECIAL MEETINGS; ACTION WITHOUT MEETING. A special meeting of
the Board of Directors shall be held whenever called by the Chairman or, during
his or her absence, by the Vice Chairman, on forty-eight (48) hours' notice to
each director personally, or by mail. Special meetings shall be called by the
Chairman or Secretary in like manner and on like notice on the written request
of any director. The purpose of a special meeting need not be specified in the
notice of the meeting. Notice of any special meeting may be waived by attendance
at a meeting, except when a director attends a meeting and objects to the
transaction of business, or by a waiver of notice signed before, during, or
after the meeting. Prior to the effective date of the merger of MCP Minnesota
into this Cooperative pursuant to the Transaction Agreement, the Board of
Directors may take any action in writing without a meeting, if the written
action is signed by all the directors.
SECTION 8 - QUORUM, VOTING. A majority of the directors in office shall
constitute a quorum necessary to the transaction of business at any annual
organizational meeting, regular meeting, or special meeting of the Board of
Directors, but if less than a quorum is present, those directors present may
adjourn the meeting from time to time until a quorum shall be present. All
questions shall be decided by a vote of a majority of the directors present at a
meeting.
SECTION 9 - EXECUTIVE COMMITTEE. The Board of Directors may designate three
(3) or more directors, one of whom shall be the Chairman of the Cooperative, to
constitute an Executive Committee. The Board of Directors may elect other
directors as alternative members of the Executive Committee. To the extent
determined by the Board of Directors, the Executive Committee shall have and
exercise the authority of the Board of Directors in the management and business
of the Cooperative; provided, however, that the Executive Committee shall not
have the powers of the Board of Directors in regard to apportionment or
distribution of proceeds, election of officers, filling vacancies on the Board
of Directors, and recommending amendments to the Articles of Incorporation or
the Bylaws. The Executive Committee shall act only in the interval between
meetings of the Board of Directors, and shall be subject at all times to the
control and direction of the Board of Directors. Copies of the minutes of each
Executive Committee meeting shall be mailed to all directors within seven (7)
days following such meeting.
SECTION 10 - COMPENSATION. The compensation of the Board of Directors shall
be determined by resolution of the Board of Directors, which shall be presented
for approval to the membership of this Cooperative at any Annual Meeting or
special meeting, and when so determined shall be continuing until altered or
amended. Officers and directors shall also be entitled to reimbursement for
actual expenses incurred in attending Board of Directors; meetings or in
conducting other business of the Cooperative. Such expense accounts shall be
approved by the Board of Directors.
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SECTION 11 - NUMBER OF DISTRICTS. The territory in which the members of
this Cooperative are located shall be divided into eight districts. The
boundaries of such districts shall be defined without dividing counties, and the
number of directors representing each district shall be approximately
proportionate to the number of members located in that district. Each district
shall be represented by two or more directors, who shall be elected at the
Annual Meeting, as provided in Section 2 of this Article III.
SECTION 12 - DISTRICTING COMMITTEE. At any time up to three years from the
establishment of the original districts, the Board of Directors shall appoint a
Districting Committee. The Districting Committee shall review the boundaries of
the districts, the number of members located in each district, and the number of
directors representing each district. The Districting Committee shall then
recommend any changes to said boundaries that are necessary to maintain equality
of representation among such districts.
The boundaries of the districts, the number of members located in each
district, and the number of directors representing each district shall be
subject to review by the Districting Committee at least every three years. The
recommendations of the Districting Committee may be accepted, rejected, or
modified by the Board of Directors. Rather than appointing a Districting
Committee, the Board of Directors may delegate the duties, powers, rights, and
responsibilities described in this Section 12 to any existing committee of the
Board of Directors.
SECTION 13 - COUNTIES AND DISTRICTS. Effective as of the Annual Meeting of
the members of the Cooperative in January of 1997, the counties in each of the
Cooperative's eight districts shall be as follows:
(a) District One. District One shall include the following counties in
Minnesota: Anoka, Big Stone, Chisago, Clay, Crow Wing, Dakota, Douglas, Grant,
Hennepin, Kanabec, Kandiyohi, Mahnomen, Meeker, Mille Lacs, Morrison, Norman,
Otter Tail, Pennington, Polk, Pope, Ramsey, Red Lake, Sherburne, Stearns,
Stevens, Swift, Todd, Traverse, Wadena, Washington, Wilkin, and Wright.
(b) District Two. District Two shall include the following counties in
Minnesota: Blue Earth, Carver, Dodge, Faribault, Fillmore, Freeborn, Goodhue, Le
Sueur, McLeod, Mower, Nicollet, Olmsted, Renville, Rice, Scott, Sibley, Steele,
Wabasha, and Waseca.
(c) District Three. District Three shall include Brown County, Redwood
County, and Watonwan County in Minnesota.
(d) District Four. District Four shall include Chippewa County and Lac Qui
Parle County in Minnesota.
(e) District Five. District Five shall include Lincoln County and Yellow
Medicine County in Minnesota, and shall also include the following counties in
South Dakota: Beadle, Bon Homme, Brookings, Brown, Charles Mix, Clark, Clay,
Codington, Deuel, Grant, Hamlin, Kingsbury, Lake, Lincoln, McCook, Miner,
Minnehaha, Moody, Spink, Turner, and
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Yankton.
(f) District Six. District Six shall include Lyon County in Minnesota.
(g) District Seven. District Seven shall include the following counties in
Minnesota: Cottonwood, Jackson, Martin, Murray, Nobles, Pipestone, and Rock.
District Seven shall also include the following counties in Iowa: Cerro
Gordo, Clay, Chickasaw, Dickinson, Emmet, Lyon, Mitchell, Osceola, Sioux, and
Winnebago.
(h) District Eight. District Eight shall include the following counties in
Iowa: Carroll, Crawford, Davis, Delaware, Dubuque, Fremont, Harrison, Ida, Linn,
Louisa, Page, Pottawattamie, Shelby, Story, and Webster.
District Eight shall also include the following counties in Nebraska:
Adams, Antelope, Boone, Buffalo, Burt, Butler, Cass, Cedar, Cheyenne, Clay,
Colfax, Cuming, Dawson, Dixon, Dodge, Douglas, Fillmore, Franklin, Gosper,
Greeley, Hall, Hamilton, Harlan, Holt, Howard, Kearney, Knox, Lancaster,
Lincoln, Madison, Merrick, Nance, Otoe, Phelps, Pierce, Platte, Polk, Red
Willow, Saline, Saunders, Scotts Bluff, Seward, Stanton, Thurston, Valley,
Washington, Wayne, Webster, Wheeler, and York.
If a situation arises where a member of the Cooperative is located in a
county which is not designated as part of the any of the Cooperative's
districts, then the Board of Directors may add that county to whichever of the
Cooperative's districts the Board of Directors determines is most logical, in
its sole discretion, and may notify the affected member of its decision. The
Board of Directors may take this action without the need for any additional
amendments to the Cooperative's Bylaws. The designation of new counties to
existing districts by the Board of Directors under these circumstances shall be
reviewed by the Districting Committee when it is next appointed.
SECTION 14 - DIRECTORS AND DISTRICTS. Before the Annual Meeting of the
Cooperative in January of 1997, each of the Cooperative's eight districts was
represented by three directors. Effective as of the Annual Meeting of the
Cooperative in January of 1997, the number of directors representing each
district shall be as follows:
(a) District One shall be represented by three directors.
(b) District Two shall be represented by three directors.
(c) District Three shall be represented by three directors.
(d) District Four shall be represented by two directors.
(e) District Five shall be represented by three directors.
(f) District Six shall be represented by two directors.
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(g) District Seven shall be represented by three directors.
(h) District Eight shall be represented by five directors.
SECTION 15 - DIRECTOR ELECTIONS RELATED TO REDISTRICTING. In order to
accomplish the transition described above in Sections 13 and 14 of this Article
III related to changing the boundaries of some of the districts and changing the
number of directors representing some of the districts, director elections at
the January, 1997 Annual Meeting of the members of the Cooperative shall be
handled in the following manner:
(a) All of the incumbent directors in District Four, and any additional
nominees to represent District Four, will participate in the election. The
candidate with the highest number of votes shall be elected to a three year
term.
The candidate with the next highest number of votes shall be elected to a
two year term, in order to stagger the terms of the District Four directors, so
that in the future, no more than one director per year will need to be elected
to represent District Four. After the director election at the 1997 Annual
Meeting, all District Four directors will be elected to three year terms.
(b) The District Six election for directors at the 1997 Annual Meeting of
the members of the Cooperative shall be handled in the same manner described
above in Article III, Section 15(a) for the District Four director election.
(c) District Eight shall elect three directors at the January, 1997 Annual
Meeting of the members of the Cooperative. One of those directors shall fill the
director position that needs to be filled as a result of an expiring term. The
other two directors elected shall increase the number of directors representing
District Eight from three to five. The incumbent District Eight directors whose
terms have not yet expired shall not participate in this election.
The two candidates with the highest numbers of votes shall be elected to
three year terms. The candidate with the next highest number of votes shall be
elected to a two year term, in order to stagger the terms of the District Eight
directors, so that in the future, no more than two directors per year will need
to be elected to represent District Eight. After the director election at the
1997 Annual Meeting, all District Eight directors will be elected to three year
terms.
(d) Director elections in the districts other than Districts Four, Six, and
Eight shall be held only in connection with expiring terms of the directors
representing those districts.
ARTICLE IV.
DUTIES OF DIRECTORS
SECTION 1 - GENERAL POWERS. The Board of Directors shall manage the
business and affairs of the Cooperative, and shall exercise all of the powers of
the Cooperative except such as are by law, the Articles of Incorporation, or
these Bylaws conferred upon or reserved to the members. The Board of Directors
shall adopt such policies, rules, regulations, and actions not inconsistent with
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law, the Articles of Incorporation, or these Bylaws, as it may deem advisable.
SECTION 2 - EMPLOYMENT OF PRESIDENT AND GENERAL MANAGER. The Board of
Directors shall select and employ a President and General Manager and fix the
compensation of such President and General Manager. The Board of Directors may
terminate the employment of the President and General Manager with or without
cause at any time, unless an enforceable written contract between the
Cooperative and the President and General Manager provides otherwise.
SECTION 3 - BONDS AND INSURANCE. The Board of Directors shall require the
President and General Manager and all officers, agents, and employees charged by
the Cooperative with responsibility for the custody of any of its funds or
property to give adequate bonds. Such bonds, unless cash security is given,
shall be furnished by a responsible bonding company and approved by the Board of
Directors, and the cost thereof shall be paid by the Cooperative. The Board of
Directors shall provide for the adequate insurance of the property of the
Cooperative, or property which may be in the possession of the Cooperative, or
stored by it, and not otherwise adequately insured, and in addition adequate
insurance covering liability for accidents to all employees and the public.
SECTION 4 - ACCOUNTING SYSTEM AND AUDIT. The Board of Directors shall
install and maintain an adequate system of accounts and records. At least once
in each year the books and accounts of such the Cooperative shall be audited,
and the report of such audit shall be made at the next Annual Meeting of the
member-shareholders.
SECTION 5 - AGREEMENTS WITH MEMBERS. The Board of Directors shall have the
power to carry out all agreements of the Cooperative with its members in every
way advantageous to the Cooperative representing the members collectively.
SECTION 6 - DEPOSITORY. The Board of Directors shall have power to select
one or more banks to act as depositories of the funds of the Cooperative, and to
determine the manner of receiving, depositing, and disbursing the funds of the
Cooperative, the form of checks, and the person or persons by whom they shall be
signed, with the power to change such banks and the person or persons signing
such checks and the form thereof at will.
ARTICLE V.
OFFICERS AND PRESIDENT AND GENERAL MANAGER
SECTION 1 - ELECTION OF OFFICE. At each Annual Meeting of the Board of
Directors, the Board of Directors shall elect the principal officers of this
Cooperative, which principal officers shall, (a) until the effective date of the
merger of MCP Minnesota into this Cooperative pursuant to the Transaction
Agreement, be a Chairman, a Vice Chairman and a Secretary/Treasurer, and (b),
thereafter, be a Chairman, a Vice Chairman, a Secretary, and a Treasurer or a
Secretary/Treasurer. The Board of Directors may elect one or more Assistant Vice
Chairmen, Assistant Secretaries, and Assistant Treasurers as and when it may
deem necessary. The Chairman and Vice Chairman must be directors of the
Cooperative. An officer may be removed by the Board of Directors whenever in its
judgment the best interests of the Cooperative will be served thereby. If any
vacancy shall occur among the principal officers of the Cooperative, it shall be
filled by the Board of Directors at its next
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regular meeting following the vacancy.
SECTION 2 - DUTIES OF CHAIRMAN. The Chairman shall:
(a) preside over all meetings of the members of the Cooperative, the
Executive Committee, and the Board of Directors;
(b) call special meetings of the Board of Directors,
(c) perform all acts and duties usually performed by an executive and
presiding officer; and
(d) sign all membership certificates and such other papers of the
Cooperative as the Chairman may be authorized or directed to sign by the Board
of Directors; provided, however, that the Board of Directors may authorize any
person to sign any or all checks, contracts, and other documents in writing on
behalf of the Cooperative. The Chairman shall perform such other duties as may
be prescribed by the Articles of Incorporation, by these Bylaws, or by the Board
of Directors.
SECTION 3 - DUTIES OF VICE CHAIRMAN. In the absence or disability of the
Chairman, the Vice Chairman shall perform the duties of the Chairman.
SECTION 4 - DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the Board of Directors, all meetings of the Executive Committee, and all
meetings of the members, and shall record all votes and keep minutes of all
proceedings. The Secretary shall keep a complete record of all meetings of the
Cooperative and of the Board of Directors, and shall have general charge and
supervision of the books and records of the Cooperative. The Secretary shall
sign all membership certificates with the Chairman, and such other papers
pertaining to the Cooperative as he or she may be authorized or directed to sign
by the Board of Directors. The Secretary shall serve all notices required by law
and by these Bylaws, including notices of meetings, and shall make a full report
of all matters and business pertaining to his or her office to the members at
the Annual Meeting. The Secretary shall keep complete stock and membership
records, shall make all reports required by law, and shall perform such other
duties as may be required of him or her by the Cooperative or the Board of
Directors. An Assistant Secretary, if any, shall perform the duties of the
Secretary during the absence or disability of the Secretary.
SECTION 5 - DUTIES OF TREASURER. The Treasurer shall perform such duties
with respect to the finances of the Cooperative as may be prescribed by the
Board of Directors. An Assistant Treasurer, if any, shall perform the duties of
the Treasurer during the absence or disability of the Treasurer.
SECTION 6 - DUTIES OF PRESIDENT AND GENERAL MANAGER. The President and
General Manager shall perform such duties as the Board of Directors may
prescribe, and shall exercise such authority as the Board of Directors may from
time to time vest in him or her. Under the direction of the Board of Directors,
the President and General Manager shall have general charge of the ordinary and
usual business operations of the Cooperative, including the purchasing,
marketing and
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handling of all products and supplies handled by the Cooperative.
The President and General Manager shall deposit all money belonging to the
Cooperative that comes into his or her possession in the name of the Cooperative
in a bank or banks selected by the Board of Directors, and if authorized to do
so by the Board of Directors, shall make all disbursements by check therefrom
for the ordinary and necessary expenses of the business in the manner and form
prescribed by the Board of Directors. On the appointment of his or her
successor, the President and General Manager shall deliver to said successor all
money and property belonging to the Cooperative which he or she has in his or
her possession or over which he or she has control.
The President and General Manager shall be required to maintain the
Cooperative's records and accounts in such a manner that the true and correct
condition of the Cooperative's business may be ascertained therefrom at any
time. The President and General Manager shall render annual and periodic
statements in the form and in the manner prescribed by the Board of Directors,
and shall carefully preserve all books, documents, correspondence, and records
of whatever kind pertaining to the business of the Cooperative that may come
into his or her possession.
Subject to the approval of the Board of Directors, the President and
General Manager shall employ, supervise, and dismiss any or all employees of the
Cooperative, except agents or counsel specifically employed by the Board of
Directors.
SECTION 7 - COMPENSATION. The salary, compensation, and other benefits of
the President and General Manager and all officers shall be fixed by the Board
of Directors; provided, however, that no officer who is a director may take part
in the vote on his or her own compensation.
SECTION 8 - SPECIAL POWERS. The President and General Manager or any
officer may be vested by the Board of Directors with any power and charged with
any duty not contrary to law or inconsistent with the Articles of Incorporation
or these Bylaws.
ARTICLE VI.
INDEMNIFICATION AND INSURANCE
SECTION 1 - INDEMNIFICATION. This Cooperative shall indemnify each
director, officer, manager, employee, or agent of this Cooperative, and any
person serving at the request of this Cooperative as a director, officer,
manager, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him or her to the fullest extent to which such officers, directors,
managers, agents, and employees of a cooperative association may be indemnified
under the laws of the State of Minnesota, or any amendments thereto or
substitutions therefor.
SECTION 2 - INSURANCE. This Cooperative shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
manager, employee, or agent of this Cooperative, or who is or was serving at the
request of this Cooperative as a director, officer, manager, employee, or agent
of another corporation, partnership, joint venture, trust, or other
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enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity.
ARTICLE VII.
METHOD OF OPERATION - PATRONAGE REFUNDS
SECTION 1 - COOPERATIVE OPERATION. This Cooperative shall be operated on
the cooperative basis. Each transaction between this Cooperative and each patron
shall be subject to and shall include as a part of its terms each provision of
the Articles of Incorporation and Bylaws of this Cooperative, whether the same
be expressly referred to in said transaction or not. Upon delivering or selling
or contracting to deliver or sell any agricultural products to this Cooperative,
or upon receiving or buying or contracting to receive or buy any supplies or
equipment or services from this Cooperative, each patron so delivering, selling,
receiving, buying, or contracting, as the case may be, shall be entitled to any
and all patronage refunds as defined in this Article VII of the Bylaws.
SECTION 2 - GROSS RECEIPTS. All proceeds of the sales of products marketed
for patrons, plus all sums received for supplies and equipment procured for
patrons, plus all sums received for any other services for patrons or income
from any source whatever shall be deemed to be "gross receipts".
SECTION 3 - ANNUAL SAVINGS.
(a) The Cooperative shall deduct from said gross receipts:
(i) all operating expenses and costs;
(ii) the cost of supplies and commodities procured or sold;
(iii) the cost of services performed;
(iv) all taxes and all other necessary expenses;
(v) all bad debts deemed worthless by the Cooperative and actually
charged off on the books of the Cooperative; and
(vi) reasonable and necessary additions to reserves for depreciation,
depletion, and obsolescence of physical property, and reasonable
and necessary additions to all other valuation reserves, all of
which shall be established in accordance with usual and customary
accounting practices.
(b) The Board of Directors may set aside a sum not to exceed five percent
(5%) of the annual savings from local operations (annual savings less patronage
refunds received from regional cooperatives) as an educational fund which shall
be used for the purpose of promoting and encouraging cooperative organization.
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<PAGE>
(c) The remainder of said gross receipts, after all of the deductions
described above in subsections (a) and (b) have been calculated upon a fiscal
year basis, shall be deemed to be net proceeds or "annual savings," and shall be
distributed to the patrons on a patronage basis, as provided by law and in this
Bylaw. There shall be no discrimination between member and nonmember patrons.
(d) The allocation and distribution of net savings to patrons may include
nonqualified written notices of allocation, qualified written notices of
allocation or any combination thereof. If the Cooperative shall distribute
twenty percent (20%) or more of its patronage refunds in cash and the remainder
in qualified written notices of allocation to those patrons who consent to take
all patronage distributions into income as provided in Section 7 of this Article
VII the distribution of patronage refunds to those patrons who do not so consent
may be made (at the discretion of the Board of Directors) solely in the form of
nonqualified written notices of allocation.
SECTION 4 - MANNER OF DISTRIBUTION OF PATRONAGE.
(a) The annual savings distributed to patrons shall be distributed annually
in cash, in Common Stock, in Units of Equity Participation (or, in the case of
non-member patrons, in Nonvoting Units of Equity Participation), in Preferred
Stock, in stock credits, in the form of certificates of interest, in revolving
fund certificates, in notes, or in the form of credits in a patronage credit
account set up on the books of the Cooperative (or any combination thereof),
allocated to patrons on a patronage basis.
(b) Distribution of annual savings to patrons shall be made as soon as
practicable after the close of each fiscal year and written notice shall be sent
to each patron showing the total amount of the distribution made to that patron
and the manner of such distribution, including the exact amount distributed in
cash, in stock, in certificates, in Units of Equity Participation or Nonvoting
Units of Equity Participation and/or in credits. Said notice shall be given not
more than eight and one-half (8-1/2) months after the close of the fiscal year.
SECTION 5 - REVOLVING CAPITAL. When, in the sole opinion of the Board of
Directors, the Cooperative has sufficient working capital, Common Stock,
Preferred Stock, certificates of interest, revolving fund certificates, notes
issued for patronage, and/or other evidence of patronage equity and patronage
credits may be called for payment at the lesser of the stated value (par value
in the case of stock) or book value thereof. Such stock or patronage equities
may be paid or redeemed in whole or in part at such time, in such manner, and in
such order as shall be determined by the Board of Directors, including payment
or redemption of a percentage of the stock or equities of the same class without
regard to date of issue; provided, however, the Board of Directors may not
redeem Nonvoting Units of Equity Participation unless it also redeems a pro-rata
number of Units of Equity Participation. The Board of Directors, in its sole
discretion, shall also have the authority to pay or redeem stock and evidences
of patronage equities held in the name of deceased patrons.
SECTION 6 - TRANSFER. No assignment or transfer of Common or Preferred
Stock, Units of Equity Participation or Nonvoting Units of Equity Participation
or any amount credited to the capital account of a patron, including any such
amount evidenced by a certificate or letter, shall
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<PAGE>
be binding on this Cooperative without the consent of the Board of Directors nor
until it shall have been entered in the books of this Cooperative.
Prior to any transfer of Common Stock, the member wishing to transfer must
notify the Board of Directors of said member's intent to transfer. If the
proposed transferee is not:
(a) the spouse, parent, child or spouse of child, brother or sister, or
spouse of brother or sister of the member who wishes to transfer; or
(b) a family farm corporation in which the member who wishes to transfer is
a shareholder, or
(c) a partnership in which the member who wishes to transfer is a partner,
such member shall, in a manner to be determined by the Board of Directors,
first offer to sell to every other member of this Cooperative all of the stock
proposed to be transferred. If more than one member desires to purchase the
stock, the Board of Directors shall determine the method by which the new
transferee will be chosen. In the event that members do not desire to purchase
any or all of said stock, the member may, subject to the consent of the Board of
Directors, transfer the stock to the originally proposed transferee.
SECTION 7 - CONSENT. Each person (including individuals, firms,
partnership, corporations, or associations) who hereafter applies for and is
accepted to membership in this Cooperative and each member or non-member patron
of this Cooperative on the effective date of this Bylaw who continues as a
member or non-member patron after such date shall, by such act alone, consent
that the amount of any distributions with respect to that person's patronage
which are made in written notices of allocation (as defined in 26 U.S.C. Sec.
1388), and which are received by that person from the Cooperative, will be taken
into account by that person at their stated dollar amounts in the manner
provided in 26 U.S.C. Sec. 1385(a) in the taxable year in which such written
notices of allocation are received by that person.
SECTION 8 - PATRON CORN DELIVERY RIGHTS AND OBLIGATIONS. Written
notification of the adoption of this Consent Bylaw, a statement of its
significance, and a copy of the provision regarding said consent shall be given
separately to each member and prospective member before they become members of
the Cooperative.
SECTION 9 - PATRONAGE DISTRIBUTIONS IN THE FORM OF UNITS OF PARTICIPATION.
The members and non-member patrons of this Cooperative understand and
acknowledge that when the Cooperative distributes all or part of its annual
savings to its members and non-member patrons in the form of Units of Equity
Participation or Nonvoting Units of Equity Participation, each of those Units
includes an obligation to deliver one additional bushel of corn to the
Cooperative each year (subject to the right of the Board of Directors to specify
fractional adjustments in the number of bushels or corn to be delivered for each
Unit, based on the Cooperative's operations).
Each member of this Cooperative, on the basis of that person's membership
in this
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Cooperative, and on the basis of the adoption of this Bylaw by the members of
the Cooperative, hereby consents to deliver an additional bushel of corn to the
Cooperative each year for each Unit of Participation distributed to that person
as part of the Cooperative's annual savings (subject to the right of the Board
of Directors to specify fractional adjustments in the number of bushels or corn
to be delivered for each Unit, based on the Cooperative's operations). This
shall be case regardless of whether those Units were distributed before or after
the adoption of this Article VII, Section 9 of the Cooperative's Amended and
Restated Bylaws.
Further, each member of this Cooperative agrees to make those additional
corn deliveries each year without amending the member's Uniform Marketing
Agreement or Supplement to Uniform Marketing Agreement with the Cooperative, and
without signing an Additional Bushel Agreement or any other similar document.
In addition, each member and non-member patron of this Cooperative agrees
to deliver these additional bushels of com at the times and locations designated
by the Cooperative.
Finally, the Board of Directors is authorized from time to time to adopt a
corn delivery program to implement the Cooperative's Uniform Marketing
Agreements with its members and specify procedures and requirements relating to
the delivery of corn to the Cooperative. Such corn delivery program shall, be
binding on the members as part of their Uniform Marketing Agreements with the
Cooperative.
SECTION 10 - LOSSES. In the event of a loss in one or more departments,
divisions of operation, or functions of this Cooperative which is not of such
magnitude as to cause an overall loss to the Cooperative for the fiscal year,
the loss shall be prorated against each of the remaining profitable departments,
divisions of operation, or functions on the basis of their respective percentage
of the annual savings during said fiscal year.
In the event that this Cooperative shall incur a net loss in any fiscal
year, said net loss shall be charged first against any capital reserve. If the
loss exceeds the amount of the capital reserve, the Board of Directors may elect
to recover the loss from prior or subsequent years' annual savings. The Board of
Directors shall not have the authority to make an assessment against members or
nonmember patrons; however, it shall have the authority to apply losses to
members' and non-member patrons' individual patronage credit accounts.
This section shall not be construed or administered so as to deprive this
Cooperative of the right to carry back or carry forward net operating losses to
past or future years in accordance with the applicable provisions of the
Internal Revenue Code or state taxing statutes.
ARTICLE VIII.
AMENDMENT
These Bylaws may be amended or repealed and new Bylaws may be adopted at
any Annual Meeting or special meeting of the members of the Cooperative by the
vote of a majority of the members present at such meeting; provided, however,
that the notice of such meeting must
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contain a summary statement of the proposed amendment; and provided, further,
that prior to the effective date of the merger of MCP Minnesota into this
Cooperative pursuant to the Transaction Agreement, these bylaws may be amended
by written action of MCP Minnesota as the only initial member.
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EXHIBIT 23.4
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DOUG FINSTROM
----------------------------------------
Doug Finstrom
January 18, 1999
EXHIBIT 23.5
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ CARL JUST
----------------------------------------
Carl Just
January 20, 1999
EXHIBIT 23.6
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DUANE ADAMS
----------------------------------------
Duane Adams
January 18, 1999
EXHIBIT 23.7
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ HOWARD DAHLAGER
----------------------------------------
Howard Dahlager
January 20, 1999
EXHIBIT 23.8
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ KEN ROBINSON
----------------------------------------
Ken Robinson
January 18, 1999
EXHIBIT 23.9
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DAVID SCHEIBEL
----------------------------------------
David Scheibel
January 24, 1999
EXHIBIT 23.10
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ STEVE LIPETZKY
----------------------------------------
Steve Lipetzky
January 18, 1999
EXHIBIT 23.11
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN ZWACH, JR.
----------------------------------------
John Zwach, Jr.
January 18, 1999
EXHIBIT 23.12
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ ROGER FJERKENSTAD
----------------------------------------
Roger Fjerkenstad
January 27, 1999
EXHIBIT 23.13
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DONALD LINDBLAD
----------------------------------------
Donald Lindblad
January 26, 1999
EXHIBIT 23.14
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DANIEL DYBSETTER
----------------------------------------
Daniel Dybsetter
January 18, 1999
EXHIBIT 23.15
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN JERZAK
----------------------------------------
John Jerzak
January 18, 1999
EXHIBIT 23.16
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DEAN BUESING
----------------------------------------
Dean Buesing
January 18, 1999
EXHIBIT 23.17
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ SANDY LUDEMAN
----------------------------------------
Sandy Ludeman
January 18, 1999
EXHIBIT 23.18
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN P. HENNEN
----------------------------------------
John P. Hennen
January 18, 1999
EXHIBIT 23.19
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN NELSON
----------------------------------------
John Nelson
January 18, 1999
EXHIBIT 23.20
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JIM GERVAIS
----------------------------------------
Jim Gervais
January 18, 1999
EXHIBIT 23.21
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ RON KIRCHNER
----------------------------------------
Ron Kirchner
January 18, 1999
EXHIBIT 23.22
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ KENNETH REGIER
----------------------------------------
Kenneth Regier
January 18, 1999
EXHIBIT 23.23
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ LARRY DOWD
----------------------------------------
Larry Dowd
January 18, 1999
EXHIBIT 23.24
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ ANDREW JENSEN
----------------------------------------
Andrew Jensen
January 18, 1999
EXHIBIT 23.25
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ PATRICK L. MEURET
----------------------------------------
Patrick L. Meuret
January 18, 1999
EXHIBIT 23.26
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ ROBERT BENDER
----------------------------------------
Robert Bender
January 18, 1999
